RBI Says Indian Economy Remains Resilient Despite Oil, Global Yield Pressures

NEW DELHI, Sept 26: India’s financial and external sectors continue to draw strength from the domestic economy despite growing global uncertainties, the Reserve Bank of India said in its latest monthly bulletin, while cautioning that higher crude prices, geopolitical tensions and global bond yields could create fresh challenges.

The RBI’s assessment, published late Friday in its latest “State of the Economy” article, said India’s economy had maintained resilience even as conditions in the global environment became more difficult. The central bank, however, identified the escalation of the West Asia conflict and weather-related uncertainties as important downside risks.

The latest developments in West Asia have pushed crude oil prices sharply higher, raising concerns about supply disruptions and renewed inflationary pressure. For an economy that remains dependent on imported crude, sustained increases in energy costs can affect transportation, manufacturing and household expenses while also putting pressure on the country’s external account.

Despite these concerns, the RBI bulletin highlighted several factors supporting India’s external position. The current account deficit remained moderate in the first quarter of 2026-27, helped by strong services exports and remittance flows.

Services exports have become an important source of foreign exchange for India, helping offset part of the pressure created by the merchandise trade deficit. Remittances from Indians working overseas have also continued to provide support to the country’s external accounts.

Foreign direct investment flows strengthened in July, with net FDI reaching their highest monthly level in five years, according to the bulletin. The report also noted a sharp increase in net inflows through non-resident deposits.

Foreign-exchange reserves provided another buffer. India’s reserves rose to $765.9 billion as of September 18, although the level subsequently came under pressure from movements in foreign-currency assets and global financial conditions.

The external sector has nevertheless faced renewed pressure from foreign portfolio investment. After recording inflows in August, portfolio investment turned into net outflows in September as the West Asia crisis intensified and global bond yields increased.

Higher yields in major advanced economies can influence international capital flows by changing the relative attractiveness of investments across markets. For emerging economies such as India, shifts in global investor preferences can affect currencies, equities and bond markets.

The Indian rupee has also remained under pressure during the recent period of elevated crude prices and higher global yields. The currency recovered somewhat on Friday, gaining 15 paise to close at 95.81 against the US dollar, with large public-sector banks selling dollars and the Reserve Bank of India intervening in the foreign-exchange market, according to market reports.

At the same time, the benchmark government bond yield rose to 7.14%, its highest level in four months. The movement reflects the pressure facing India’s debt markets as global financing conditions remain challenging.

The RBI bulletin also drew attention to domestic price trends. High-frequency data available until September 21 indicated a broad-based sequential increase in food prices.

Rice and wheat prices continued to rise, although the month-on-month increase in rice prices moderated. Prices of several pulses, including gram, tur and moong, also moved higher over the previous month.

Edible-oil prices recorded a broad based increase, led by mustard and palm oil. Among vegetables, onion prices rose sharply, while tomato prices increased after two months of moderation. Potato prices, in contrast, declined on a month-on-month basis.

The food-price movements are important for the inflation outlook because changes in essential food items can have a direct effect on household budgets and overall consumer-price readings.

The RBI’s assessment comes as policymakers and businesses monitor the economic consequences of higher energy costs. A prolonged increase in crude prices could affect India’s import bill and inflation while also influencing corporate costs and consumer demand.

The central bank also noted that India’s domestic economy continued to provide support to the financial and external sectors. The assessment suggests that strong domestic activity, combined with services exports and remittance receipts, is helping the economy absorb some of the pressure generated by external shocks.

The RBI bulletin’s assessment is particularly relevant for businesses because movements in crude prices, exchange rates and interest rates can influence operating costs, financing expenses and investment decisions.

Companies dependent on imported energy or raw materials may face higher costs if the oil shock persists. Export-oriented businesses, meanwhile, will continue to monitor currency movements and demand in major overseas markets.

Financial markets are also responding to the changing international environment. Indian equities extended their weekly decline for a seventh consecutive week, with elevated crude prices, higher US Treasury yields, geopolitical uncertainty and foreign-investor outflows weighing on sentiment.

The government and central bank therefore face the challenge of maintaining domestic economic momentum while managing risks emerging from international markets. The strength of services exports, remittances, foreign-exchange reserves and domestic demand provides some support, but the external environment remains uncertain.

The RBI also made clear that the views in the “State of the Economy” article are those of its authors and do not necessarily represent the institutional views of the central bank.

For businesses, the latest assessment underscores the importance of monitoring energy costs, foreign exchange movements, overseas demand and financing conditions as the global environment remains volatile.