The performance of this year’s southwest monsoon will be crucial for both India’s farm sector and inflation trajectory, with any significant rainfall shortfall likely to affect agricultural output and food prices, RBI Governor Sanjay Malhotra said during the Monetary Policy Committee briefing on Friday.
Malhotra cautioned that the food inflation outlook remains uncertain despite headline consumer inflation staying below the central bank’s target. The RBI projected inflation at 5.1% for the rest of the financial year.
The uncertainty stems from forecasts of a subnormal southwest monsoon and the possibility of El Niño conditions, which are often associated with weaker rainfall across parts of India.
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A deficient monsoon could have a direct impact on crop production, particularly for rain-fed agriculture, potentially disrupting supplies of key food items and putting upward pressure on prices.
"Food outlook remains uncertain on account of subnormal southwest monsoon forecasts and El Nino risks. The projected deficiency from the southwest monsoon will have impact on agricultural products," Malhotra said.
Given the significant role of food in India’s inflation basket, developments in the monsoon season will be closely watched by policymakers and markets alike.
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Malhotra indicated that weather-related risks remain a key concern. A favourable monsoon could help sustain price stability and support rural incomes, while a weaker rainfall season may complicate the inflation outlook in the months ahead.
The RBI kept the repo rate unchanged at 5.25% and retained its neutral policy stance. While expressing confidence in India's ability to weather external shocks, the central bank lowered its FY27 GDP growth forecast to 6.6% from 6.9%, citing risks from the West Asia conflict, elevated oil prices and supply-chain disruptions. RBI Governor Sanjay Malhotra said India's foreign exchange reserves stood at a healthy $682.3 billion as of June 5, providing a strong buffer against external shocks.
Below normal monsoon causes concern
The central bank's comments come in the middle of concerns that resurfaced after the India Meteorological Department projected Southwest Monsoon 2026 rainfall at 90% of the Long Period Average (LPA), categorising it as "below normal".
The strongest link between India's economy and monsoon is through food prices, which account for nearly half of India's Consumer Price Index (CPI) basket. A poor or uneven monsoon can reduce crop yields, lower supplies of vegetables, pulses and cereals, and push food prices higher. Since food has a large weight in the inflation basket, overall inflation can rise.
The weather agency's latest outlook has become more significant amid forecasts that El Niño conditions could develop during the monsoon season. Historically, El Niño has often been associated with weaker rainfall in India, raising concerns about crop yields and food supplies.
The timing is important because inflation has already begun inching higher.
Consumer price inflation rose to 3.84% in April, up from 3.4% in March, marking the fourth consecutive monthly increase.
Economists have warned that a combination of deficient rainfall, elevated energy prices and a weaker rupee could intensify price pressures in the months ahead.
Just days ahead of the key RBI committee’s meet, the finance ministry had also flagged this risk, noting that higher crude oil prices linked to the West Asia conflict, along with the prospect of a below-normal monsoon, warrant continued policy vigilance.
The RBI had projected inflation at 4.6% for FY27, with the sharpest rise expected during October-December — the period when monsoon-related effects on food prices typically become visible.
Yet the relationship between rainfall and inflation is not always straightforward.
Analysts point out that food inflation depends as much on where the rain falls as on the national rainfall average. Adequate reservoir levels, comfortable foodgrain stocks and normal rainfall in key farming regions could cushion the impact of a weaker monsoon.
For now, growth expectations remain resilient, but the monsoon will remain one of the most closely watched variables shaping India's inflation and economic outlook this year.
