Mumbai: India's financial and external sectors continue to draw strength from a resilient domestic economy, though escalating geopolitical tensions and weather-related uncertainties remain key downside risks, RBI Bulletin said on Friday.
The escalation of conflict in West Asia in September has led to a sharp increase in crude oil prices, reigniting concerns of further disruption in global supply chains and build-up of inflationary pressures, said the article on 'State of the Economy' published in the latest Bulletin.
Besides, the rise in sovereign yields in some of the major advanced economies has put pressure on government finances.
Despite the challenging global environment, the Indian economy recorded a strong GDP growth in Q1:2026-27, the article said.
"India's financial and external sectors are drawing strength from the real economy, although geopolitical tensions and weather-related uncertainties are acting as key downside risks," it said.
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It further said system liquidity remained in surplus in August and surged further in the first half of September as banks tapped the Reserve Bank's Foreign currency non-resident (Bank) [FCNR(B)] swap facility, before moderating later in the month due to tax-related outflows.
Money supply growth accelerated in August on account of a rapid increase in aggregate deposits.
"Credit growth maintained its momentum while deposit growth picked up," it said.
According to the article, Indian equity markets remained subdued in August and September as geopolitical tensions and elevated bond yields weighed on investor sentiment.
"The current account deficit remained moderate in Q1:2026-27, supported by robust services exports and remittance flows," it said.
Foreign direct investment (FDI) flows strengthened in July with net FDI reaching its highest monthly level in five years, the article said, adding that net inflows under non-resident deposits rose sharply.
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Various capital flow measures announced in June supported the accumulation of foreign exchange reserves, which rose to USD 765.9 billion as of September 18, 2026.
On the other hand, the article said, foreign portfolio investment (FPI) registered net outflows in September after witnessing inflows in August, on re-escalation of the West Asia crisis and rising global bond yields.
On inflation, it said, until September 21, high-frequency data suggest a broad-based sequential increase in food prices.
Among cereals, rice and wheat prices continue to rise, though the pace of month-on-month increase moderated for rice.
"Prices of all major pulses, gram, tur and moong inched up over the previous month. Edible oil prices also registered a broad-based increase, led by mustard and palm oil," it said.
Among key vegetables, onion prices increased sharply, and tomato prices inched up after two months of moderation, while potato prices recorded a month-on-month decline.
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.
