“Global economic outlook remains clouded by the continuing geopolitical impasse in West Asia, as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity,” he said in his monetary policy statement.
“Major advanced economy central banks are likely to pivot towards monetary policy tightening. While equity markets remain buoyant driven by AI-fuelled optimism, global bond markets remain bearish amidst renewed inflation fears and continuing debt sustainability concerns,” Malhotra said.
Risk-off sentiments and safe haven demand are imparting volatility to forex markets, with a depreciating trend in many Emerging Market Economies currencies, he noted.
“Let me at the outset emphasise that the Indian economy entered this episode of global turbulence with much better fundamentals than in previous similar episodes,” the RBI Governor said.
While we remain confident to withstand these shocks with minimum pain, it is important to not only confront and address these challenges but also take them as an opportunity to further enhance resilience, he added.
“Overall, the Indian economic situation has broadly exhibited resilience and withstood the conflict spillovers, although the impact of cost pressures is becoming visible,” Malhotra said.
Sustained momentum in services, continuing impact of GST rationalisation, and broadly stable employment conditions should continue to support urban consumption, even though rising inflation could be a drag on the purchasing power of households, he said.
Government capex is expected to remain robust. While the elevated capacity utilisation and sustained credit flows from bank and non-bank sources are supportive of corporate investment, cost escalation and heightened uncertainty could dampen investor sentiment, Malhotra said.
Weak global demand and high logistics costs are headwinds for merchandise exports. Services exports, on the other hand, are expected to sustain their momentum as demand for Indian services remains healthy, he said.
Several measures undertaken by the Government, including support to MSME and export sectors, efforts to ramp up domestic gas and crude production, encouraging use of domestically produced alternatives to imported inputs, and diversification of critical imports should help cope up with the external shocks, Malhotra said.
The Reserve Bank of India would ensure appropriate liquidity in the banking system to meet the productive requirements of the economy and facilitate monetary policy transmission, he said.
As per the latest available data, credit from all sources grew by 15.4 per cent (yo-y) in 2025-26 as compared to 12.1 per cent a year ago. Bank credit growth continued to remain robust and broad-based as market-based funding became costlier, Malhotra said.