Strong macroeconomic fundamentals, policy interventions help cushion India against global headwinds: RBI bulletin
The article published in the Reserve Bank of India's (RBI) October Bulletin has said that strong macroeconomic fundamentals and targeted policy interventions are helping cushion India against global headwinds, including rising inflation due to the West Asia crisis and ongoing trade tensions. It said renewed geopolitical frictions in West Asia and supply chain disruptions have amplified inflationary pressures, prompting major central banks to raise policy rates. It said elevated sovereign bond yields in advanced economies (AEs) have also brought into focus concerns about fiscal sustainability and its implications for financial stability.
The article on 'State of the Economy' noted that Indian economy continued to demonstrate strength, as evidenced by high-frequency indicators across industry and services. The headline Consumer Price Index (CPI) inflation edged up in September driven by a broad-based increase in food, fuel, and core components. Double-digit growth in merchandise exports during the first six months of 2026-27 helped in narrowing the trade deficit. FDI, ECB and remittance flows strengthened in August. Strong inflows under the FCNR(B) swap window augmented reserves. It further said rising inflationary pressures induced by the West Asia crisis and recurrent trade tensions, alongside multi-decade-high sovereign bond yields, elevated public debt, and broader fiscal sustainability concerns are looming large. Some silver linings are evident in the form of positive technology shocks and related dividends from AI. It added that despite being a net energy importer, GDP growth has been supported by sustained domestic demand and services.
The article also said the rupee exhibited a depreciating bias since late September owing to a stronger US dollar and surging crude oil prices. The domestic currency appreciated subsequently in mid-October, supported by the Reserve Bank's measures to curb speculative dollar demand and a softer greenback. FDI flows continued to remain robust in August 2026, supported by strong gross inflows and moderation in outward FDI. Communication, miscellaneous services and manufacturing received more than two-thirds of the FDI inflows. The central bank said the views expressed in the Bulletin article are those of the authors and do not represent the views of the Reserve Bank of India.
