Mumbai, Oct 23 Strong macroeconomic fundamentals and targeted policy interventions continue to anchor the economy against global headwinds, including rising inflation due to the West Asia crisis and ongoing trade tensions, the RBI Bulletin said on Friday.
Renewed geopolitical frictions in West Asia and supply chain disruptions have amplified inflationary pressures, prompting major central banks to raise policy rates, the article published in the Reserve Bank’s October Bulletin said.
Elevated sovereign bond yields in advanced economies (AEs) have also brought into focus concerns about fiscal sustainability and its implications for financial stability, it said.
Indian economy continued to demonstrate strength, as evidenced by high-frequency indicators across industry and services, it added.
The article on ‘State of the Economy’ noted that the global economy is currently passing through a rough phase with multiple shocks.
Although the IMF has upgraded the global economic outlook for 2026 and 2027, the prospect remains clouded by significant downside risks.
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.
“Navigating this environment, the Indian economy has been anchored by solid macroeconomic fundamentals and policy interventions to cushion downside risks,” it said, adding that despite being a net energy importer, GDP growth has been supported by sustained domestic demand and services.
The article noted that headline consumer price index (CPI) inflation edged up over the months and showed signs of greater generalisation across commodities, calling for a commensurate change in the monetary policy stance.
“The external headwinds are also being dealt with a slew of regulatory measures by the Reserve Bank to curb speculative activity in the foreign exchange market,” the article said.
It further said that strong inflows under the FCNR(B) swap window augmented reserves. FDI, ECB and remittance flows strengthened in August.
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,” the article said.
Communication, miscellaneous services and manufacturing received more than two-thirds of the FDI inflows.
The US, Singapore and Mauritius were the major source countries, accounting for about 72 per cent of FDI inflows.
On Indian equity markets, the article said that it remained mostly bearish in September and October (till 19th) amid rising risk-off sentiment with escalating geopolitical tensions, elevated crude oil prices and tightening financial conditions.
Bearish foreign institutional investor (FII) sentiment weighed on foreign equity inflows, although domestic institutional investors (DIIs) extended support and remained net buyers.
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.
(PTI News)
