Renewed West Asia tensions, weather shocks pose risk to growth: RBI Governor

“The West Asia conflict continues to challenge the global economy by disrupting key trade routes and supply chains, amplifying market volatility and depressing business sentiments,” he said in his monetary policy statement.

Also read: RBI expects FY2027 growth at 6.7%, inflation at 5%

Trade uncertainty lingers as US imposed fresh tariffs. The global economic environment has become increasingly unstable, Malhotra said.

The Monetary Policy Committee (MPC) of RBI decided to keep its repo rate unchanged at 5.25 per cent and decided to continue with the neutral stance.

“The MPC also decided to retain the neutral stance to respond appropriately to macroeconomic developments. The MPC underscored that it will maintain a close vigil and remain resolute in its commitment to align inflation with the target,” Malhotra said.

The reescalation of the West Asia conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty about supply chains, he said.

“Overall, the India economy performed better than expected in Q1,” Malhotra said.

As for the exchange rate, we will continue with our policy of it being determined by market forces, while curbing excessive volatility, checking speculative behaviour and preventing disorderly movements to ensure that it is not out of sync with fundamentals or disruptive of economic activity, he said.

India’s foreign exchange reserves continue to be adequate in terms of the standard metrics of reserve adequacy with import cover of over 10 months and external debt cover of 90.8 per cent, Malhotra added.

“Global economic conditions and sentiments continue to remain hostage to the rapidly oscillating developments, both in scale and intensity, of the West Asia conflict,” he said.

“While these have impacted the domestic growth-inflation outlook adversely, the stronger macroeconomic fundamentals of the Indian economy are helping navigate this global shock resolutely,” Malhotra said.

“As alluded to in my last Statement, this presents an opportunity to accelerate measures to enhance our resilience to withstand such shocks. We shall continue to implement policies that further fortify our economy,” he said.

“Whether it is facilitating sustainable growth or promoting consumer protection; whether it is preserving stability of prices, the financial system or the currency, we will do whatever it takes to ensure the same,” Malhotra assured.