India's inflation projected at 5% in FY27, raising RBI rate‑hike prospects

ICICI Bank Global Markets forecasts consumer‑price inflation to average 5.0% in fiscal year 2027, driven by the ongoing West Asia conflict, a below‑normal monsoon and higher global food prices. May CPI was 3.94% YoY, with food, core and energy components all running above prior months. The brokerage says the situation could justify a 50‑75 basis‑point increase in the Reserve Bank of India’s policy rate.

Separately, the RBI kept the repo rate at 5.25% but cut its growth outlook for FY27 and lifted its inflation expectations. A weakening rupee, rising oil and commodity prices and a fiscal deficit above the 3% ceiling have strained the economy. Foreign investors have pulled about $22 billion from Indian markets, while the government has deployed a Rs 1 lakh crore stabilisation fund and other credit schemes to support exporters and limit the trade deficit.