RBI Governor Sanjay Malhotra announces a higher FY27 GDP growth forecast of 7.1% alongside a 25-basis-point repo rate hike to 5.5%. (Images: X)
New Delhi: The Reserve Bank of India (RBI) has raised its real GDP growth forecast for FY27 to 7.1%, up from the earlier estimate of 6.7%, signaling continued confidence in the strength of the Indian economy despite growing global uncertainties. RBI Governor Sanjay Malhotra announced the revised outlook on October 7, while also unveiling higher growth projections for the second and third quarters of FY27.
The central bank raised its Q2 FY27 GDP growth estimate to 7.2%, compared with the previous projection of 6.4%. For Q3 FY27, the forecast was increased to 6.9% from 6.5%. The RBI kept its Q4 FY27 growth estimate unchanged at 6.8%. However, the central bank trimmed its projection for Q1 FY28 to 7.1%, from the earlier estimate of 7.3%. Overall, the new FY27 projection represents a 0.4 percentage-point increase over the RBI's previous forecast.
Malhotra said the Indian economy continued to show broad-based momentum with the Monetary Policy Committee expecting economic activity to remain resilient. Private consumption emerged as a key growth driver in the first quarter, supported by relatively strong discretionary spending.
High-frequency economic indicators also suggested that activity remained firm during the second quarter, although momentum moderated somewhat from the previous quarter. Manufacturing activity continued to remain resilient despite pressure from rising costs, according to the RBI governor.
The more optimistic domestic growth forecast comes at a time when the global economic environment is becoming increasingly challenging. According to Malhotra, global growth is expected to slow compared with the previous year. The renewed escalation of the West Asia conflict has weighed on global sentiment, while higher crude oil prices have added volatility to financial markets. Persistent trade-related uncertainty is also keeping investors cautious. The RBI highlighted geopolitical tensions and tighter monetary policies as important downside risks to the global economy.
In a significant policy move, the Monetary Policy Committee increased the repo rate by 25 basis points to 5.50%, from 5.25%. The MPC also shifted its policy stance from neutral to calibrated tightening. Four members backed the change in stance while two members opposed it.
The move indicates that the central bank is placing greater emphasis on containing inflation risks even as economic growth remains relatively strong.
Malhotra said the inflation outlook was less favourable than it had been during the previous year, prompting the MPC to reconsider the policy rate. The RBI expects core inflation to average 4.4% in FY27, while consumer price inflation is projected to average 5.8% over the remaining three quarters of the financial year. The governor also made it clear that an immediate rate cut is unlikely.
RBI's latest policy guidance suggests that the next move in interest rates is more likely to be either a hike or a pause, depending on how inflation and other economic conditions evolve. Malhotra said the pace, duration and extent of any tightening would depend on the inflation trajectory and emerging economic risks.
The latest policy decision presents a mixed picture for the Indian economy: stronger GDP expectations on one side and tighter monetary policy on the other.
While the upgraded growth forecast reflects confidence in domestic demand, manufacturing and economic resilience. The repo rate hike highlights the RBI's concern over inflation and global risks.
Key takeaway: India's growth outlook has improved, but the RBI is signalling that controlling inflation will remain a priority, potentially keeping borrowing costs elevated in the near term.
