New Delhi, May 29: India’s growth and inflation outlook face short-term risks due to rising geopolitical tensions, elevated crude oil prices and global uncertainty, according to Reserve Bank of India (RBI).
It said the Indian economy demonstrated resilience despite multiple external headwinds but the ongoing conflict in West Asia, elevated crude oil prices, supply chain disruptions, financial market volatility and uncertainty surrounding global trade policies could weigh on economic activity in the near term.
India, one of the world’s largest crude importers, remains vulnerable to fluctuations in global energy prices, the RBI said in a latest report.
It also flagged weather-related disruptions as a potential risk to inflation and growth.
Despite these concerns, the RBI said the Indian banking system is expected to remain resilient, supported by prudent regulatory reforms, stable credit growth and adequate capital buffers.
It said healthy corporate and banking sector balance sheets, continued government spending on capital expenditure and implementation of trade agreements with key partners are expected to support investment activity and sustain growth momentum.
“On balance, supported by sound fundamentals and healthy balance sheets, the domestic financial system has sufficient buffers to withstand adverse shocks,” the report said.
At the same time, the central bank cautioned that lingering geopolitical tensions and supply chain disruptions could affect corporate earnings and the performance of bank loan portfolios in the near term.
The RBI also warned that elevated sovereign bond yields may exert pressure on the investment portfolios of financial institutions.
“Domestic bond yields could face upward pressure if the global monetary easing cycle stalls or reverses in response to persistent oil price shocks amid fragile conditions in the Middle East,” it said.
However, the report added that the government’s commitment to fiscal consolidation, along with liquidity injection measures by the RBI, is expected to contain upward pressure on yields and support financial market stability.
The central bank stressed the need for continuous assessment of evolving global developments to ensure timely and appropriate policy responses. While warning of near-term risks, the RBI maintained that India’s overall growth outlook remains positive, supported by strong domestic fundamentals and policy support measures.
