RBI confident of keeping inflation below 4% over the year in FY26: Annual Report

The central bank's Annual Report, released on Thursday, said that inflation has already fallen below the target in February and March 2025, which has strengthened the outlook for a durable alignment with the inflation target.

"With inflation falling below the target in February and March 2025, supported by a sharp fall in food inflation, there is now greater confidence about a durable alignment of headline inflation with the target of 4.0 per cent over a 12-month horizon," the report said.

The headline inflation measures the price change for all goods and services, including the volatile items like food and fuel.

RBI noted that the current benign inflation outlook and moderate growth suggest that monetary policy should remain supportive of growth. However, it also underlined the need to stay alert due to rapidly changing global economic conditions.

Inflation trends have shown improvement over the past year. Headline inflation, which includes all items in the consumer price index (CPI), averaged 4.6 per cent during 2024-25, down from 5.4 per cent in the previous year.

This was mainly due to a fall in core inflation (CPI excluding food and fuel), which eased to 3.5 per cent, and a 2.5 per cent deflation in fuel prices.

Food inflation, which had peaked at 9.7 per cent in October 2024, fell sharply to 2.9 per cent by March 2025. However, core inflation saw an uptick in the second half of the year, mainly due to rising international gold prices.

Looking ahead, the inflation outlook for 2025-26 appears promising. The easing of global commodity prices, softening supply chain pressures, and expectations of a better agricultural output due to an above-normal south-west monsoon are likely to help keep inflation in check.

Globally, inflation came down to 5.7 per cent in 2024 from 6.6 per cent in 2023, due to gradual monetary tightening and improved supply conditions. It is expected to further decline to 4.3 per cent in 2025 and 3.6 per cent in 2026.

However, RBI cautioned that some risks remain. Stubborn services inflation in some parts of the world, higher tariffs in the US, and the possibility of uncoordinated global monetary responses could challenge near-term price stability.

Additionally, factors like financial market volatility, geopolitical tensions, trade fragmentation, supply disruptions, and climate-related shocks could impact growth and push inflation upwards. (ANI)