India’s financial, external sectors retain resilience, RBI says

INDIA, 26 SEPTEMBER 2026 —

India’s Financial and External Sectors Hold Firm Amid Geopolitical Risks, RBI Bulletin Shows

India’s financial and external sectors remain despite escalating global tensions, with domestic economic resilience shielding growth from crude oil price spikes and weather-related disruptions, according to the Reserve Bank of India’s (RBI) latest State of the Economy bulletin published on Friday. However, rising sovereign yields in advanced economies and renewed geopolitical instability—particularly the West Asia conflict—pose persistent downside risks to inflation and supply chains.

The bulletin shows India’s economic strength amid a volatile global backdrop. While the Indian economy posted strong GDP growth in the first quarter of fiscal year 2026-27 (Q1:2026-27), the RBI warns that geopolitical tensions and adverse weather conditions—including their impact on food prices—could strain stability. The escalation of the West Asia conflict in September triggered a sharp crude oil price surge, heightening concerns over global supply chain disruptions and inflationary pressures.

Meanwhile, rising bond yields in major advanced economies have increased pressure on government finances worldwide.

Liquidity Surplus and Credit Growth System liquidity in India remained in surplus through August, surging further in the first half of September as banks utilized the RBI’s Foreign Currency Non-Resident (Bank) (FCNR(B)) swap facility, before moderating later in the month due to tax-related outflows. Money supply growth accelerated in August, driven by a rapid increase in aggregate deposits, while credit growth sustained its momentum.

The RBI noted that deposit growth also picked up, reflecting strong domestic liquidity conditions.

Equity Markets and Capital Flows Indian equity markets faced subdued performance in August and September, as geopolitical tensions and elevated bond yields dampened investor sentiment. The current account deficit remained moderate in Q1:2026-27, supported by services exports and strong remittance inflows. Foreign direct investment (FDI) flows strengthened in July, with net FDI reaching its highest monthly level in five years, while net inflows under non-resident deposits also rose sharply.

Capital flow measures announced in June contributed to a $765.9 billion accumulation in foreign exchange reserves as of September 18, 2026, the RBI reported. However, foreign portfolio investment (FPI) experienced net outflows in September—reversing August’s inflows—due to the re-escalation of the West Asia crisis and rising global bond yields.

Inflation Pressures and Food Price Trends On inflation, high-frequency data until September 21 indicated a broad-based sequential increase in food prices. Among cereals, rice and wheat prices continued to rise, though the month-on-month increase for rice moderated. Prices of major pulses—including gram, tur, and moong—also inched up, while edible oil prices saw a broad-based increase, led by mustard and palm oil.

Key vegetable prices showed mixed trends: onion prices surged, tomato prices rose after two months of decline, and potato prices recorded a month-on-month drop. The RBI emphasized that these trends reflect both domestic supply constraints and global commodity price volatility.

The bulletin clarifies that the views expressed are those of the authors and do not necessarily represent the official stance of the Reserve Bank of India. The report concludes on a note of cautious optimism, acknowledging India’s resilience while flagging external risks that could test economic stability in the near term.

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