In its latest Ecowrap report, SBI Research projects that India's Consumer Price Index (CPI) inflation will average 5% for the fiscal year 2027. This forecast comes as headline retail inflation accelerated to 4.38% in June 2026, a significant increase from 3.93% in May, driven predominantly by escalating food prices and a sharp jump in transport and services costs.
Rising Price Pressures and Imported Inflation Risks
The report, released on July 13, 2026, highlights that core inflation, excluding volatile food and fuel components, also firmed up to 4.20%, indicating a broader spread of price pressures across the economy. SBI Research anticipates CPI inflation to be 5.1% in Q2, 5.7% in Q3, and 5.1% in Q4 of FY27.
A significant concern raised by the report is the growing risk of imported inflation, which climbed from 7.23% in May to 8.13% in June. This underscores the critical importance of exchange rate management, particularly amidst global uncertainties and elevated commodity prices. The Reserve Bank of India's (RBI) foreign currency mobilization measures, announced in June, are seen as vital in this context. A relatively stable rupee, supported by prudent intervention in the foreign exchange market, is deemed essential to prevent imported inflation from impacting domestic prices.
Rupee Stability Despite Inflows
Despite capital inflows exceeding $15 billion in recent weeks, including $7.1 billion in foreign portfolio investment primarily directed towards debt, the Indian rupee has largely remained range-bound. Foreign currency non-resident (bank), or FCNR(B), deposits under the RBI's latest scheme are estimated to have reached $8-9 billion, with external commercial borrowings (ECBs) at approximately $5 billion and overseas foreign currency bonds (OFCBs) at roughly $3 billion.
SBI Research attributes the rupee's stability, despite these substantial inflows, to the RBI's active use of forward market operations. Net forward positions surged to $106.6 billion in May 2026, with the central bank concentrating interventions in short-term maturities. This strategy, dubbed a "Gladiator defence mechanism," aims to preserve rupee stability against heightened geopolitical uncertainty and volatile global markets.
Drivers of June Inflation and Policy Outlook
Among the key contributors to June's inflation surge, transport inflation saw the sharpest rise, jumping 256 basis points to 4.3%. Inflation in restaurants and accommodation services increased to 6.9%, while food and beverages inflation climbed to 5.1%. Both rural and urban areas experienced higher inflation, with rural CPI rising from 4.25% to 4.74% and urban inflation from 3.53% to 3.92%.
Given persistent imported inflation and broadening domestic price pressures, SBI Research expects the RBI to maintain a prolonged pause in interest rates throughout FY27. The central bank is likely to continue prioritizing exchange-rate stability as its primary policy focus.