Food inflation may average 6% in FY27 as weak monsoon threatens crop output: CareEdge Ratings

Food inflation in India is likely to average around 6 per cent in FY27, while headline consumer inflation is projected at 5 per cent as a sharp rainfall deficit at the beginning of the monsoon season raises concerns over agricultural production and food prices, according to a report by CareEdge Ratings.

The report highlighted that cumulative monsoon rainfall between June 1 and June 29, 2026, was 41.5 per cent below the long-period average, increasing the risk of lower crop output and higher food prices. The concern comes at a time when edible oil inflation stood at 9.5 per cent in May, adding to inflationary pressures.

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"With a poor monsoon, we project food inflation to average around 6 per cent in FY27 and CPI inflation at 5 per cent," the report said. Beyond agriculture, CareEdge noted that while India's oil trade deficit has remained broadly in line with last year's levels, the non-oil trade deficit widened during the fiscal year, reflecting changing trade dynamics.

On the external sector, the report said India's current account recorded a surplus of USD 4.7 billion in April 2026, but heavy capital outflows resulted in an overall Balance of Payments (BoP) deficit of USD 6.6 billion.

The ratings agency expects the Indian rupee to average between 92 and 93 against the US dollar during FY27, assuming crude oil prices remain around USD 90 per barrel.

According to the report, policy measures by the Reserve Bank of India (RBI) and the government—including initiatives related to FCNR(B) deposits, external commercial borrowings by public sector undertakings, the expansion of the Fully Accessible Route (FAR) for government securities, and targeted tax incentives—are expected to support foreign capital inflows and limit depreciation in the domestic currency.

On the bond market, CareEdge expects easing geopolitical tensions to keep yields stable through the fiscal year. Following the announcement of the US-Iran peace deal, concerns over fiscal pressures have moderated, leading to a decline in government bond yields across maturities.

"We expect 10-year government security (G-sec) yields to average 6.8-6.9 per cent in FY27," the report said. The report suggests that while macroeconomic fundamentals remain relatively resilient, the progress of the southwest monsoon will remain a key determinant of inflation, monetary policy and overall economic growth during the fiscal year.