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Informist, Thursday, May 29, 2025

 

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--RBI:Global fincl mkt volatility a risk to growth, upside risk to inflation 
--RBI: Trade fragmentation a risk to growth, upside risk to inflation
--RBI: Supply chain disruptions a risk to growth, upside risk to inflation 
--RBI:Climate-induced uncertainties risk to growth, upside risk to inflation 
--RBI: Durable price stability a prerequisite for sustainable high growth 
--RBI: Trade policies, subdued demand, high input costs pose risks to growth 
--RBI: Trade protectionism, policy uncertainty to hit global econ growth 
--RBI: Ongoing geopolitical tensions to also hit global econ growth in 2025 
--RBI: Govts face tough job of tweaking monetary, fisc steps to aid growth 
--RBI: Global growth outlook clouded by heightened trade tensions 
--RBI: Global growth outlook clouded by elevated policy-led uncertainty 
--RBI: Benign CPI outlook, moderate growth warrant policy to support growth

 

NEW DELHI – The Indian economy is poised to remain the fastest-growing major economy in 2025-26 (Apr-Mar), but trade fragmentation and geopolitical conflicts pose significant downside risk to the growth trajectory, the Reserve Bank of India said Thursday. Besides these, global financial market volatility, supply chain disruptions, and climate-induced uncertainties pose downside risks to the growth outlook and upside risks to the inflation outlook, the central bank said in its Annual Report for FY25. 

 

The RBI pinned its hopes of India remaining fastest growing economy in FY26 on sound macroeconomic fundamentals, robust financial sector and commitment towards sustainable growth. In this endeavour, the monetary policy is committed towards achieving durable price stability, which is a necessary prerequisite for high growth on a sustained basis, the central bank added.

 

The RBI has projected India's GDP growth for FY26 at 6.5% while the Economic Survey for FY25 had projected GDP growth to be in the range of 6.3-6.8% this year. On Tuesday, the finance ministry had said that government's direct tax exemptions and other fiscal measures, along with interest rate cuts by the RBI, may stimulate consumption and accelerate India's growth momentum to inch closer to 6.8% in FY26. Analysts, however, expect India's GDP growth to be closer to the lower band of 6.3%.

 

At the latest meeting of the RBI's Monetary Policy Committee in April, the rate-setting panel had unanimously decided to cut the policy repo rate by 25 basis points to 6.00% to support domestic growth. The panel had also voted to change the policy stance to 'accommodative' from the 'neutral' adopted in October. The rate-setting panel is expected to cut the repo rate further by at least 50 bps this year.

 

In the annual report, the central bank reiterated the "benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions." The rate-setting panel will meet next week for their bi-monthly meeting.

 

The central bank flagged the risks from trade fragmentation and evolving trade policies more than once at a time when Washington's reciprocal tariff threat looms on economies, including India. It poses risks to India as the US is India's top export destination with a share of 19% in total outbound shipments in FY25. A bilateral trade agreement with Washington is New Delhi's hope to avoid Trump's proposed reciprocal tariff of 26% on Indian goods, which is likely to be back in place from Jul. 9.

 

"India's merchandise exports are expected to be uncertain from a projected slowdown in global trade due to downside risks emanating from ongoing geopolitical conflicts, geoeconomic fragmentation and policy uncertainty," the RBI said. Besides, subdued demand and high input cost pressures in the manufacturing sector pose risks to India's growth outlook, the report added. "Taking into account these factors, real GDP growth for FY26 is projected at 6.5%, with risks evenly balanced," it reiterated.

 

Globally as well, the central bank noted protectionist trade policies and uncertainties emanating from it will hurt economic growth. "The global economy in 2025 is likely to grow not only below its historical average (2000 to 2019) of 3.7%, but also below the growth of 3.3% in 2024, on account of heightened global trade protectionism, rising policy uncertainty and ongoing geopolitical tensions," RBI said.

 

In this context, policymakers face the "daunting task of suitably calibrating monetary and fiscal policies to support growth, while safeguarding financial and macroeconomic stability," India's central bank said.  End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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