On the inflation front, RBI’s assessment that headline CPI inflation has remained benign, with projections of 2.1 per cent for 2025–26, provides comfort to both consumers and producers. Moderation in food prices, stable core inflation (excluding food and fuel), and adequate buffer stocks are positive factors for price stability and GDP growth.

At the same time, the RBI’s acknowledgment of potential upside risks from geopolitical tensions, commodity price volatility, and precious metal prices highlights the need for continued vigilance, he added.

Stable interest rate environment, coupled with benign inflation expectations, can help sustain investment momentum. High capacity utilisation, healthy balance sheets of corporates and financial institutions, and robust credit growth are likely to support private sector investment decisions. The government’s continued thrust on capital expenditure is expected to crowd in private investment and strengthen medium-term growth prospects, said Mr. Rajeev Juneja.

Near-term outlook suggests that food supply prospects remain positive on the back of healthy kharif production and favourable rabi sowing, said Mr. Rajeev Juneja.

RBI’s positive outlook on the external sector, particularly the expectation that merchandise exports may receive a boost from recently concluded EU-India FTA and US tariff deal. Trade diversification will help mitigate risks arising from a volatile global trade environment. However, for sustained export competitiveness continued focus on logistics efficiency, trade facilitation, and access to affordable finance for exporters, especially MSMEs, said Mr. Rajeev Juneja.

RBI’s decision is growth-supportive and confidence-enhancing for industry. A predictable monetary policy framework, combined with ongoing structural reforms and fiscal support through public capex, can help India sustain its growth trajectory at the same time navigating global uncertainties. Continued coordination between monetary and fiscal policy to strengthen India’s macroeconomic fundamentals augurs well for long-term economic prospects, says CEO and Secretary General, PHDCCI, Dr. Ranjeet Mehta.

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Report highlights:

Axis Bank projects above-trend, above-consensus growth of 7.5% in the world’s fastest-growing large economy.

The authors’ thesis rests on several drivers:

1.       Receding fiscal drag and supportive monetary policy to drive above-trend growth of 7.5%. Structural reforms and regulatory easing to boost growth in the medium term.

2.       Improved financials, low cost of capital, high-capacity utilization (need for new capex) to lift capital expenditure in FY27.

3.       Sustained TFP gains and a rebound in capital formation support a 7% trend growth outlook.

Headline inflation of ~4% likely in FY27, but economic slack to persist

§  Median inflation, a better gauge of underlying price pressures, has been stable at ~3% for 18 months signalling persistent slack in the economy.

§  Axis Bank expects FY27 headline inflation of ~4% despite above-trend growth and a likely rebound in food prices.

§  Policy rates have likely bottomed, but money supply can rise further to aid monetary transmission and credit growth; supply-side measures (more T-bills, shorter-duration bonds) can reduce the yield curve steepness.

§  Axis Bank expects 10Y yields to drift close to 6% in FY27.

India’s external balance is stable, USD-INR weakness helps

§  The INR’s recent weakness has brought the REER to competitive levels.

§  Axis Bank expects the current account deficit to widen a notch, to 1.2% of GDP in FY26 and 1.3% in FY27, while the surge in capital outflows seen in 2Q/3Q of FY26 will likely abate.

Economic Outlook 2026: ‘Look! Growth above trend but low inflation’.

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