MUMBAI
Persisting uncertainties related to India-US trade policies continue to pose downside risk, said Reserve Bank of India (RBI) officials in the August edition of RBI Bulletin.
“Inflation outlook for the near term has become more benign than anticipated earlier,” they said in the State of the Economy article.
However, they said the Indian economy remained resilient amidst inflation dynamics.
“Domestic economic activity remained mixed across sectors in July. Timely progress of monsoon has boosted kharif sowing. While industrial activity remained subdued, manufacturing sector expanded, along with services sector sustaining the growth momentum,” they wrote in the article.
Stating that the timely progress of southwest monsoon has helped increase kharif sowing, they said the favourable rainfall and temperature conditions bode well for the kharif agriculture season and an increase in real rural wages may support rural demand in the second half of the financial year.
“Coupled with the benign financial conditions, ongoing transmission of rate cuts, supportive fiscal measures and rising household optimism, the environment is conducive for holding up aggregate demand,” they observed.
“Headline inflation, driven by muted food price pressures supported by favourable base effects, are likely to soften further below the 4 per cent target in Q2 before inching up in the last quarter of the financial year,” they said.
They emphasised that the recent S&P’s sovereign rating upgrade for India – underpinned by buoyant economic growth, enhanced monetary policy credibility and government’s commitment to fiscal consolidation- could potentially lead to a reduction in borrowing costs, greater investor confidence and higher foreign capital inflows, going forward.
They said India’s external sector remained resilient with a modest current account deficit and forex reserves covering 11 months of imports.
Headline inflation fell for the ninth consecutive month in July and Financial conditions remained congenial and supportive of domestic economic activity, they stated.
On the credit side, they said bank credit growth exhibited a modest improvement in June 2025, driven by an uptick in credit to micro, small and medium enterprises.
Published – August 29, 2025 10:58 pm IST