Rising Crude Prices Could Intensify Inflation, Disrupt Supply Chains Amid West Asia Conflict: RBI

New Delhi, Sep 26 (KNN) The Indian economy has remained resilient despite heightened global uncertainties, but rising crude oil prices amid the escalation of the West Asia conflict could intensify inflationary pressures and disrupt supply chains, the Reserve Bank of India (RBI) said in its September Bulletin.

“Despite such a challenging global environment, the Indian economy recorded a strong GDP growth of 7.8 per cent in Q1:2026-27,” the RBI said in its State of the Economy report, noting that high-frequency indicators through August reflected sustained demand and resilience across parts of the industry and services sectors.

The central bank said headline CPI inflation rose to 4.8 per cent in August, driven by food and beverages, fuel and core components. It also flagged higher sovereign yields in some major advanced economies as a pressure on government finances.

FCNR(B) Flows Boost Liquidity

The RBI said strong FCNR(B) deposit flows increased system liquidity and supported deposit growth, potentially aiding the ongoing credit cycle. Bank deposits grew at their fastest pace in 15 years in August, moderating the incremental credit-deposit ratio.

The rupee saw brief recoveries in early September following strong FCNR(B) inflows, but these gains reversed later in the month amid higher crude oil prices.

India’s foreign exchange reserves reached a record USD 766 billion as of September 18, providing 11.2 months of goods import cover and exceeding 100 per cent of external debt outstanding at end-March 2026.

FDI Inflows Rise

Net foreign direct investment (FDI) rose 64 per cent year-on-year to USD 7.3 billion in July, supported by gross inflows of USD 14.6 billion. Communication, financial and computer services accounted for more than four-fifths of equity inflows, while Mauritius, the UAE and the US were the major source countries.

During April-July, net FDI inflows increased 38 per cent to USD 13.4 billion, while gross FDI rose 12.6 per cent to USD 43.9 billion.

The RBI said geopolitical tensions and weather-related uncertainties remain key downside risks to the economy.

(KNN Bureau)