Indian Economy Supported by Strong Macroeconomic Fundamentals, Policy Interventions: RBI Bulletin

New Delhi, Oct 24 (KNN) India’s economy has remained resilient to global shocks, supported by domestic demand, sustained manufacturing and services activity and improving exports. However, rising inflation and geopolitical uncertainties pose risks to the outlook, according to the Reserve Bank of India’s (RBI) October Bulletin.

The article said strong macroeconomic fundamentals and policy interventions continued to cushion the economy against global headwinds. It clarified that the views expressed were those of the authors and did not represent the RBI’s official position.

It noted that the International Monetary Fund (IMF) raised its growth projection for India in 2026-27 by 60 basis points to 7 per cent, citing stronger economic momentum, resilient domestic demand and robust services activity.

The Indian economy had withstood the shocks well, citing strong high-frequency indicators across industry and services, it added.

Inflation Pressures Rise

Consumer price index (CPI)-based inflation rose to 5.5 per cent in September, driven by increases in food, fuel and core components. Core inflation, excluding food and fuel, edged up to 4.3 per cent, while the measure excluding precious metals rose to 3.2 per cent. Data up to October 19 also indicated broad-based food price increases.

Against this backdrop, the Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 5.5 per cent and shifted its stance from neutral to calibrated tightening, citing elevated inflation expectations and broader price pressures.

The West Asia conflict, now in its eighth month, has kept energy prices high and disrupted supply chains. Strengthening El Niño conditions and uncertainty over global trade policies have added to inflation risks.

Global Uncertainty Weighs on Markets

The global economy faces multiple shocks, including inflation, trade tensions, elevated public debt and multi-decade-high sovereign bond yields in advanced economies. Tighter financial conditions have also triggered portfolio outflows from emerging markets.

The rupee depreciated from late September amid a stronger US dollar and higher crude prices, but recovered in mid-October following RBI measures to curb speculative dollar demand and a softer greenback.

Indian equity markets remained mostly bearish in September and October up to October 19, as geopolitical tensions, high crude prices and tighter financial conditions weighed on sentiment. Foreign institutional investors remained net sellers, while domestic institutions were net buyers.

Exports and Capital Flows Remain Supportive

Merchandise exports recorded double-digit growth for the sixth consecutive month, narrowing the trade deficit in September from a year earlier. Services exports remained strong, while FDI, external commercial borrowings (ECB) and remittance flows strengthened in August.

Communication, miscellaneous services and manufacturing accounted for more than two-thirds of FDI inflows, with the US, Singapore and Mauritius together contributing about 72 per cent.

The RBI said measures to curb speculative foreign exchange activity, along with USD 133 billion in inflows under the FCNR(B) swap window, supported foreign exchange reserves. As of October 16, reserves covered 10.6 months of goods imports, providing a buffer against external shocks.

(KNN Bureau)