New Delhi [India], February 8 : The Union Bank of India highlighted that inflation for FY25 could be lower than the Monetary Policy Committee's (MPC) revised forecast of 4.4 per cent, with Q4 FY25 Consumer Price Index (CPI) inflation likely tracking at 4 per cent. For FY26, the bank projects inflation at 4.0 per cent, slightly below the MPC's estimate of 4.2 per cent.
It has raised concerns over downside risks to India's growth and inflation projections for the coming years.
The UBI stated, "MPC revised FY25 growth projection to 6.4 per cent from 6.6 per cent previously even as it projects recovery to 6.7 per cent in FY26. We see downside risk to 6.4 per cent growth forecast for FY25 as it assumes Dec'24 quarter growth above 6.5 per cent while its tracking close to 6 per cent as of now."
It added, "However, we are still pencilling in FY26 growth at 6.5 per cent from 6-6.2 per cent this year; 7 per cent growth in Q2 FY26 looks optimistic to us in the current global environment."
Looking ahead, the bank maintains an FY26 growth estimate of 6.5 per cent, though it remains cautious about the MPC's optimism regarding a 7 per cent growth rate in Q2 FY26 amid global economic challenges.
Union Bank of India maintains its view of a shallow rate cut cycle, initially expecting a total reduction of 50 basis points, with 25 basis points already implemented.
Given the ongoing global uncertainty, the bank expects the Reserve Bank of India (RBI) to assess further rate cuts around April. It notes that with the MPC's 4.2 per cent CPI forecast for FY26, the repo rate is likely to settle at 6 per cent, while inflation risks will continue to be monitored closely.
The RBI-led MPC unanimously decided to reduce the policy repo rate by 25 basis points to 6.25 per centthe first rate cut in five years.
However, it maintained a neutral stance to retain policy flexibility amid global financial volatility, trade uncertainties, and potential climate-related disruptions. The committee emphasized that while growth is expected to recover from Q2 FY25 lows, it remains lower than the previous year.
Inflation is expected to moderate further in FY26, aligning with the 4 per cent target, supported by a favourable food inflation outlook and the transmission of past monetary policy actions.
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