RBI May-25 Forward Looking Survey paints a cautious picture

9 Jun 2025 , 09:33 AM

The latest RBI forward looking survey for May 2025, published in early June 2025, has a note of caution on inflation expectations are growth estimates. The big news is that rural India appears to be a lot more optimistic about macros than urban India.

• URBAN CONSUMER CONFIDENCE SHOWS PESSIMISM

The RBI has now classified its consumer confidence survey into urban consumer confidence and rural consumer confidence. Let us talk about urban consumer confidence first. It looks at current urban consumer confidence vis-à-vis one-year ago; as well as the one-year ahead expected consumer confidence. While consumers continue to be confident of the 1-year ahead period, they are still cautious about the present. There continues to be pessimism about the current price levels and the risk of inflation going up due to global disruptions. However, despite the short term concerns, households remain optimistic about the year-ahead period. However, Indian consumers are optimistic by default.

• RBI RURAL CONFIDENCE SURVEY PAINTS A BRIGHTER PICTURE

This is the second rural confidence survey published separately by the RBI. Unlike urban consumer confidence, that is cautious about the current situation and slightly optimistic about the year-ahead, rural consumer confidence is robust on both counts. The current rural confidence index continues to be above 100 levels, showing that it is in optimistic zone. This can be attributed to the real experiences of rural India in terms of Kharif crop, Rabi crop, higher MSP, and rural infrastructure programs. More importantly, the concerns of inflation have eased substantially in rural India, which is in contrast to the situation in urban India, where inflation is still a major issue.

• INFLATION EXPECTATIONS OF HOUSEHOLDS FOR 2025

The inflation survey of households is interesting in the sense that it looks at current inflation with respect to 3-months ahead, and the current inflation with respect to 1-year ahead expectations. Here is what we decipher from the household expectations data.

• Compared to the March survey, the household perception of current inflation is down 10 bps from 7.8% to 7.7%. This could be due to the visible effects of falling oil and gold prices; as well as a sharp fall in food prices. However, the perception of 3-months ahead inflation is flat at 8.9%, compared to the March survey.
• We have already seen that compared to the March survey, the household perception of current inflation is down 10 bps from 7.8% to 7.7%. What about the expectation in the one-year ahead period? The perception of 1-year ahead inflation is lower by 20 bps at 9.5%, compared to the March survey.

There is something to note here. This lower inflation expectation appears to have been influenced by the rural vote, as urban India still believes inflation will move higher.

• WHAT THE PROFESSIONAL FORECASTERS IN MAY 2025

Apart from surveying consumers, RBI also includes the survey of professional forecasters on GDP growth, inflation, and current account deficit.

• Professional forecasters are cautious about GDP growth. While the GDP growth estimate for FY26 has been placed 20 bps lower than March survey at 6.3%, the growth for FY27 is placed 10 bps below the March survey at 6.6%. This is sharply lower than previous years and the pressure got accentuated this time due to the global uncertainty. While private final consumption expenditure is unlikely to change meaningfully, the growth in gross capital formation has fallen sharply in this latest survey. Corporates are likely to go slow on major investment plans, amidst an uncertain macro environment.
• As per the professional forecasts, CPI inflation is pegged 40 bps lower than March survey at 3.8% for FY26 and 10 bps lower than March Survey at 4.2% for FY27. However, core inflation is projected in the range of 4.2% to 4.4% for next 2 years, which means inflation gains must come purely from food and fuel. Apparently, the survey is factoring in supply chain bottlenecks and higher gold prices in this period.
• On the external trade front, merchandise exports are expected to grow at 1.5% in FY26 (200 bps lower than March estimates) and 5.0% in FY27. On the other hand, merchandise imports are targeted to grow at 4.1% (40 bps lower) in FY26 and 5.8% (30 bps higher) respectively. The current account deficit (CAD) is expected to come down to 0.9% of GDP in FY26, but move back to 1.0% in FY27.

Overall, the survey expectations are cautious and they do expect a negative impact on GDP growth and inflation in the current year due to the global state of flux.