RBI bulletin: India's financial, external sectors continue to draw strength from resilient domestic economy
India's economy is showing resilience despite global uncertainties and high geopolitical tensions affecting financial markets, RBI's bulletin said. Crude oil prices have sharply increased due to escalating conflicts in West Asia, prompting concerns over inflation. The Reserve Bank indicates a strong GDP growth in the first quarter of 2026-27, with moderate current account deficits. Credit and…
The Reserve Bank of India's latest Bulletin highlights the resilience of India's financial and external sectors, drawing strength from a robust domestic economy. However, escalating geopolitical tensions and weather-related uncertainties remain significant risks. The rise in crude oil prices following conflicts in West Asia has reignited concerns about global supply chain disruptions and inflationary pressures.
This has also put pressure on government finances, with sovereign yields rising in major advanced economies. Despite these challenges, India's economy recorded strong GDP growth in Q1:2026-27. The financial and external sectors are benefiting from real economic strength, though geopolitical tensions and weather uncertainties pose key downside risks.
System liquidity remained in surplus in August and surged in the first half of September as banks utilized the Reserve Bank's Foreign Currency Non-Resident (Bank) swap facility, though it moderated later due to tax-related outflows. Money supply growth accelerated in August, driven by a rapid increase in aggregate deposits, while credit growth maintained its momentum.
Indian equity markets remained subdued due to geopolitical tensions and elevated bond yields. The current account deficit remained moderate, supported by robust services exports and remittance flows. Foreign direct investment flows strengthened in July, reaching their highest monthly level in five years, with net FDI inflows at their highest in five years.
Net inflows under non-resident deposits also rose sharply. Foreign portfolio investment registered net outflows in September due to renewed global bond yields and the re-escalation of the West Asia crisis. Until September 21, high-frequency data indicated a broad-based sequential increase in food prices, with rice and wheat prices rising, though the pace moderated for rice.
Onion prices increased sharply, while potato prices declined. The central bank emphasized that the views in the Bulletin are those of the authors and not the Reserve Bank of India.
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