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Informist, Tuesday, Aug. 25, 2026

 

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--RBI paper: Global econ confronting fragile geopolitical environment
--CONTEXT: Comments in RBI's state of economy paper in Bulletin for August
--RBI paper: Global econ confronting  continuing trade-related uncertainties 
--RBI paper:India econ demonstrated resilience amid ongoing global headwinds 
--RBI paper: Foreign capital inflows rebounded, reinforcing external sector 
--RBI paper:Recovery in southwest monsoon Jul partly eased agri sector risks 
--RBI paper: Data shows broad-based sequential increase in food prices 
--RBI paper: Headline CPI rose fractionally, core inflation remained stable 

 

NEW DELHI – High-frequency data show a broad-based sequential increase in food prices during the first three weeks of August, which is seen driving headline inflation even if core inflation remained stable, the Reserve Bank of India's staff said in an article Tuesday. Within food items, rice and wheat prices continued their upward trajectory while prices of all pulses inched up compared to July. Edible oil prices registered broad-based increases, led by mustard and palm oil, the central bank staff said in the 'State of the Economy' article in the RBI's August bulletin.

 

"While headline CPI inflation rose fractionally, reflecting food inflation, core inflation remained stable," the RBI staff said. The views in the article are of the authors and do not represent those of the central bank, the RBI said.

 

Food inflation has been benign for a while, but after war broke out in West Asia, it has steadily inched up, with the outlook also clouded by supply-side risks from the war and evolving El Nino conditions. CPI inflation rose to a 19-month high of 4.45% in July, marking the ninth consecutive month of a rise. The July print was also the second month when inflation remained above the Reserve Bank of India's medium-term target of 4%. Core inflation, which excludes food and fuel, was stable at 3.9% in July. 

 

"While headline CPI inflation edged up above the target, it was primarily on account of supply-side pressures," according to the report. "Stable core inflation reaffirmed the lower pass-through of cost pressures." 

 

Economists estimate retail inflation to rise in the next few months, primarily due to higher food prices, especially of proteins and vegetables. While the risks to food inflation remain, the agriculture sector draws some comfort from the southwest monsoon picking up. "The recovery in southwest monsoon in July helped in kharif sowing reaching closer to normal acreage, partly mitigating some of the risks to the agriculture sector," according to the report. As per the latest data, farmers across the country had sown kharif crops on nearly 105.7 million hectares as of Friday, down 1.5% from 107.3 million hectares a year ago.

 

Higher crude oil prices also have a second-round impact on food prices. According to the central bank staff, the price of the Indian basket of crude oil increased to $89.7 per barrel in the first three weeks of August, higher than the average price recorded in June as well as in July.

 

The report also noted that the rupee depreciated in the first 20 days of August due to a rebound in global crude oil prices. The rupee has been under pressure from a surge in crude oil prices and strong foreign capital outflows following the outbreak of war in West Asia at the end of February. It depreciated to a record low of 96.96 in May. Since then, it has been volatile. The rupee closed at 95.41 Tuesday.

 

To protect the rupee and replenish India's foreign exchange reserves, which were depleted to shield the domestic unit and to pay for a higher import bill, the RBI had announced dollar-rupee swap facilities to attract foreign capital. To boost inflows, in June the central bank announced a swap window where it bears the hedging costs of banks converting capital raised through mobilising three- to five-year foreign currency non-resident (banks) deposits. It also rolled out swap facilities for public-sector undertakings' external commercial borrowings and banks' offshore foreign currency borrowings, offering a concessional rate of 1.5% per annum.

 

Thanks to these measures, foreign capital inflows rebounded, reinforcing the external sector, as per the report. "Financial conditions are characterised by high credit growth, comfortable liquidity, and softening G-sec (Indian government securities) yields supported by rebound in capital inflows," the RBI staff said. 

 

These metrics are promising, especially as the global economy is confronting a fragile geopolitical environment and continuing trade-related uncertainties, the central bank staff said. "The global economic outlook continues to be shaped by geopolitical frictions in West Asia and fresh tariffs by the US."

 
But despite risks to global trade and the growth-inflation dynamics, India's robust macroeconomic fundamentals continue to provide a cushion to the domestic economy, they noted in the report. "Nevertheless, the domestic economy has demonstrated notable resilience to the ongoing global headwinds, characterised by buoyant domestic demand and rising manufacturing and services activity," the RBI staff said.  End

 

US$1 = INR 95.41

 

Reported by Priyasmita Dutta

Edited by Rajeev Pai

 

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