RBI Expects Inflation to Stay Under Control Despite El Niño Risks

The Reserve Bank of India (RBI) expects retail inflation to remain aligned with its target during the 2026-27 fiscal year, supported by healthy foodgrain stocks and sufficient reservoir levels, according to the RBI Annual Report for 2025-26.

The RBI report further stated that stable agricultural prospects are expected to persist despite the potential for El Niño conditions and above-normal summer temperatures.

Headline inflation moderated significantly to 2.1% in 2025-26 from 4.6% in the previous year, primarily due to muted food prices and a favourable base effect. For the 2026-27 period, the central bank projects Consumer Price Index (CPI) inflation at 4.6%. The government and RBI have also formally retained the inflation target of 4%, with a tolerance band of ±2%, for the five-year period ending March 2031.

Stable Agriculture Limits Risks

Agricultural resilience has improved as irrigation intensity and technological advancements have reduced the sector's sensitivity to rainfall variability. The report notes that while El Niño poses a downside risk, positive Indian Ocean Dipole conditions likely to emerge later in the monsoon season could provide a partial offset. Additionally, the government's management of fertiliser stocks and the launch of AI-based advisory tools like ‘Bharat-VISTAAR’ (Virtually Integrated System to Access Agricultural Resources) are expected to support crop productivity.

The Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 5.25% in April 2026, maintaining a neutral stance. The RBI remains vigilant regarding upside risks, including potential spikes in global energy and commodity prices or supply chain disruptions resulting from the ongoing West Asia conflict.

India’s broader economic outlook remains positive with real GDP growth projected at 6.9% for 2026-27. This growth is supported by strong corporate balance sheets and the government’s continued focus on capital expenditure, which helps provide a buffer against external global headwinds and financial market volatility.

Food Stocks Remain High

According to a recent PTI report published in May 2026, government foodgrain stocks rose to 604 .02 lakh tonnes as of April 1, nearly three times the mandatory buffer requirement.

Wheat and rice reserves held in Food Corporation of India godowns are expected to support food security and help contain inflationary pressures despite weather-related risks and global supply disruptions.