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Informist, Monday, Jun. 22, 2026

 

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--RBI paper: High-frequency data for Apr-May suggests sustained econ momentum 
--CONTEXT: Comments in RBI's state of economy paper in Bulletin for June 
--RBI paper: India's external sector resilient, supported by FDI inflows 
--RBI paper: India external sector resilient, aided by adequate FX reserves 
--RBI paper: India CPI inflation remained anchored in May despite rise 
--RBI paper: Any breakdown of US-Iran peace deal may reignite inflation risks 
--RBI paper: An adverse southwest monsoon may weigh on India growth outlook 
--RBI paper: Adverse southwest monsoon may weigh on India inflation outlook

 

NEW DELHI – Reserve Bank of India staff said on Monday that an adverse southwest monsoon, if it materialises, is likely to weigh on India's growth and inflation outlook. However, the record buffer stocks of rice and wheat are likely to provide a cushion against the adverse impact of lower monsoon rains and an El Nio.

 

The southwest monsoon this year has been off to a slow start. During Jun. 1–21, India received 57.4 millimetres of rainfall, 42?low normal. The India Meteorological Department has projected the southwest monsoon rainfall in 2026 to be below normal at 90% of the long-period average. Lower rainfall and the likelihood of an El Nio this year have raised concerns over higher food prices. 

 

"Given the good harvest last year, the public procurement of wheat has been robust. The public stock of rice and wheat with the Food Corporation of India (FCI) is well above the buffer norms, which may serve as a strategic cushion against any supply disruption or spike in prices triggered by a likely El Nio weather phenomenon," the RBI staff said in the State of the Economy article part of the monthly Bulletin. The comments in the article are the views of the authors and do not represent the views of the central bank, RBI said. 

 

Earlier this month, the RBI raised its CPI inflation projection for 2026-27 (Apr-Mar) by 50 basis points to 5.1%, citing weather and war-related risks. CPI inflation is seen rising to 5.9% in the December quarter, near the upper bound of the RBI's 2-6% tolerance band, with 4% as the medium-term target. CPI inflation "remained anchored" at 3.93% in May. Inflation is on track to be lower than the RBI's projection of 4.2% in the June quarter.

 

A key reason for the RBI raising its inflation projection was the sharp rise in energy prices due to disruptions caused by the war in West Asia. The RBI assumed crude oil prices at $95 per barrel for its latest projections. With the US and Iran signing a ceasefire agreement, crude oil prices have slumped to below $80 per barrel, even lower than the $85 per barrel the central bank had assumed in its April forecasts.

 

"Any breakdown of the agreement may reignite material risks in terms of inflationary expectations, disrupted critical energy infrastructure, delayed investment spending, food security concerns, adverse financial stability outlook and structurally lower growth," the RBI staff said. "The uncertainties could have an impact on the outlook through international trade, cost pressures, capital flows and commodity prices."

 

The Indian economy entered this period of geopolitical turbulence with fundamentals robust enough to sustain the shock, the RBI staff said. "India maintained a consistently high growth, anchored inflation expectations, sustained fiscal consolidation, manageable current account balance and foreign exchange buffers over the previous few years, which adds to its strength vis--vis similar other events in the past," the staff said in the paper. 

 

The RBI also lowered its GDP growth forecast for FY27 by 30 bps to 6.6%, with growth expected to be between 6.3% and 6.8% during the year. India's GDP grew at a higher-than-estimated 7.8% in the March quarter and 7.7% in FY26.

 

According to the RBI staff, high-frequency indicators for Apr-May suggest sustained economic momentum this year. "Domestic demand conditions remained resilient, supported by urban demand. According to the revised series of the Index of Industrial Production, industrial growth strengthened in April, driven by the manufacturing sector," the staff noted.

 

India's external sector, too, remained resilient, supported by foreign direct investment inflows and adequate foreign exchange reserves, the RBI staff said. "Recent policy measures, including the expansion of the Fully Accessible Route to longer-tenor government securities and tax exemptions for foreign investors in government securities, are expected to strengthen demand for Indian sovereign debt and support capital inflows," the staff said.  End

 

US$1 = INR 94.68

 

Reported by Shubham Rana

Edited by Saji George Titus

 

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