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Growth in India is expected to further strengthen in coming months while inflation is moderating from its peak and will bolster macroeconomic fundamentals, the Reserve Bank of India's October bulletin, published on Thursday, showed.

"Growth is expected to gain momentum through the rest of the year, especially from the impetus of festival spending," the article on the State of the Economy in the bulletin said.

"Vegetable prices may correct even more in October and expand disposable incomes of consumers," it said.

India's retail inflation eased to a three-month low of 5.02% in September on the back of softer vegetable prices, but remained above the RBI's medium-term target of 4%.

On the external front, the current account deficit is modest and more than financed by the foreign exchange reserves providing a strong buffer, insulating the economy from global spillovers and the slowdown in external demand, the bulletin said.

It added that the Indian rupee exhibited low volatility and orderly movements relative to peers despite elevated U.S. treasury yields and a stronger dollar.

"Movements in the INR are consistent with the strength of the underlying macro-fundamentals and the reassuring availability of buffers," the report said.

Indian yields have shown remarkable stability due to the inclusion in JPMorgan's emerging market debt index, responsible government market borrowing and prudent debt and liquidity management, the RBI said.

"Both passive and active funds are expected to flow into Indian debt markets, but they may bring with them associated volatility which will need to be carefully and nimbly managed," it said.

In a separate article on measuring uncertainty, RBI authors said higher uncertainty causes a decline in output while stoking inflation pressures, and poses a policy dilemma between supporting growth and price control.