Looking ahead, food inflation is likely to soften on the back of a better rabi crop, leading to gradual moderation in headline inflation, says the report
| Photo Credit:
FRANCIS MASCARENHAS
The outlook for the Indian economy remains promising in FY26, supported by revival in consumption demand, the government’s continued thrust on capex while adhering to the path of fiscal consolidation, among others, according to RBI’s Annual Report.
Further, healthy balance sheets of banks and corporates, easing financial conditions, continuing resilience of the services sector and strengthening of consumer and business optimism, besides sound macroeconomic fundamentals, will be supportive of the promising outlook.
However, uncertainty about global trade post-protectionist measures, protracted geopolitical tensions and global financial market volatility pose downside risks to the growth outlook and upside risks to the inflation outlook.
Despite the aforementioned risks, the Indian economy is poised to sustain its position as the fastest-growing major economy in FY26 by leveraging its sound macroeconomic fundamentals, robust financial sector and commitment towards sustainable growth, RBI said.
The Report emphasised that the benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions.
“Going forward, domestic economic activity is expected to strengthen from the lows of H1FY25. Headline inflation is expected to ease and move further towards the target in FY26. Monetary policy is committed towards achieving durable price stability, which is a necessary prerequisite for high growth on a sustained basis,” it said.
The Reserve Bank underscored that it will undertake liquidity management operations in sync with the monetary policy stance and keep system liquidity adequate to meet the needs of the productive sectors of the economy.
The report cautioned that rising input cost pressures in the manufacturing sector, coupled with global headwinds such as protectionist trade policies, persistent geopolitical tensions and subdued global demand, continue to pose risks to growth.
Looking ahead, food inflation is likely to soften on the back of a better rabi crop, leading to gradual moderation in headline inflation.
The disinflationary process, however, is subject to uncertainties emanating from prolonged geopolitical conflicts, evolving trade dynamics and weather conditions, which warrant continuous vigil and careful monitoring of the evolving dynamics.
Referring to portfolio capital flows exhibiting volatility, the report said strong buffers in the form of ample foreign exchange reserves and modest external debt liabilities impart strength to the external sector, contributing to overall macroeconomic and financial stability.
The central bank said it will make concerted efforts towards rationalisation and harmonisation of regulations across regulated entities; issuance of prudential guidelines on climate risk for banks; preparing a framework for responsible and ethical adoption of AI in financial sector.
Further, it will also strengthen liquidity stress tests of Banks; and examine the migration of UCBs/NBFCs to risk-based supervision, besides strengthening cyber security and fraud detection mechanism.
Published on May 29, 2025
Looking ahead, food inflation is likely to soften on the back of a better rabi crop, leading to gradual moderation in headline inflation, says the report
| Photo Credit:
FRANCIS MASCARENHAS
The outlook for the Indian economy remains promising in FY26, supported by revival in consumption demand, the government’s continued thrust on capex while adhering to the path of fiscal consolidation, among others, according to RBI’s Annual Report.
Further, healthy balance sheets of banks and corporates, easing financial conditions, continuing resilience of the services sector and strengthening of consumer and business optimism, besides sound macroeconomic fundamentals, will be supportive of the promising outlook.
However, uncertainty about global trade post-protectionist measures, protracted geopolitical tensions and global financial market volatility pose downside risks to the growth outlook and upside risks to the inflation outlook.
Despite the aforementioned risks, the Indian economy is poised to sustain its position as the fastest-growing major economy in FY26 by leveraging its sound macroeconomic fundamentals, robust financial sector and commitment towards sustainable growth, RBI said.
The Report emphasised that the benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions.
“Going forward, domestic economic activity is expected to strengthen from the lows of H1FY25. Headline inflation is expected to ease and move further towards the target in FY26. Monetary policy is committed towards achieving durable price stability, which is a necessary prerequisite for high growth on a sustained basis,” it said.
The Reserve Bank underscored that it will undertake liquidity management operations in sync with the monetary policy stance and keep system liquidity adequate to meet the needs of the productive sectors of the economy.
The report cautioned that rising input cost pressures in the manufacturing sector, coupled with global headwinds such as protectionist trade policies, persistent geopolitical tensions and subdued global demand, continue to pose risks to growth.
Looking ahead, food inflation is likely to soften on the back of a better rabi crop, leading to gradual moderation in headline inflation.
The disinflationary process, however, is subject to uncertainties emanating from prolonged geopolitical conflicts, evolving trade dynamics and weather conditions, which warrant continuous vigil and careful monitoring of the evolving dynamics.
Referring to portfolio capital flows exhibiting volatility, the report said strong buffers in the form of ample foreign exchange reserves and modest external debt liabilities impart strength to the external sector, contributing to overall macroeconomic and financial stability.
The central bank said it will make concerted efforts towards rationalisation and harmonisation of regulations across regulated entities; issuance of prudential guidelines on climate risk for banks; preparing a framework for responsible and ethical adoption of AI in financial sector.
Further, it will also strengthen liquidity stress tests of Banks; and examine the migration of UCBs/NBFCs to risk-based supervision, besides strengthening cyber security and fraud detection mechanism.
Published on May 29, 2025
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The point of using Lorem Ipsum is that it has a more-or-less normal distribution of letters, as opposed to using ‘Content here, content here’, making
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It is a long established fact that a reader will be distracted by the readable content of a page when looking at its layout. The point of using Lorem Ipsum is that it has a more-or-less normal distribution
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