India’s financial, external sectors continue to draw strength from resilient domestic economy: RBI…

Fresh updates from the financial markets indicate that India's financial and external sectors keep draw resilience from a resilient domestic economy, though escalating geopolitical tensions and weather-related uncertainties stay key downside risks, RBI Bulletin stated on Friday.

The escalation of conflict in West Asia in September has led to a sharp gain in oil price marks, reigniting concerns of further disruption in global supply chains and build-up of inflationary pressures, stated the article on 'State of the Economy' published in the latest Bulletin.

Besides, the climb in sovereign yields in some of the major advanced economies has put pressure on government finances.

Despite the challenging global environment, the Indian economy recorded a firm GROSS DOMESTIC PRODUCT expansion in Q1:2026-27, the article stated.

"India's financial and external sectors are drawing resilience from the real economy, although geopolitical tensions and weather-related uncertainties are acting as key downside risks," it stated.

It further stated system liquidity remained in surplus in August and surged further in the first half of September as banks tapped the Reserve Bank's Foreign currency non-resident (Bank) [FCNR(B)] swap facility, before moderating later in the month due to tax-related outflows.

Money supply expansion accelerated in August on account of a rapid gain in aggregate deposits.

"Credit expansion maintained its momentum while deposit expansion picked up," it stated.

According to the article, Indian equity markets remained subdued in August and September as geopolitical tensions and elevated bond yields weighed on investor sentiment.

"The current account deficit remained moderate in Q1:2026-27, supported by robust services exports and remittance flows," it stated.

Foreign direct investment (FDI) flows strengthened in July with net FDI reaching its highest monthly level in five years, the article stated, adding that net inflows under non-resident deposits rose sharply.

Various capital flow measures announced in June supported the accumulation of foreign exchange reserves, which rose to USD 765.9 billion as of September 18, 2026.

On the other hand, the article stated, foreign portfolio investment (FPI) registered net outflows in September after witnessing inflows in August, on re-escalation of the West Asia crisis and rising global bond yields.

On inflation, it stated, until September 21, high-frequency data suggest a broad-based sequential gain in food prices.

Among cereals, rice and wheat prices keep climb, though the pace of month-on-month gain moderated for rice.

"Prices of all major pulses, gram, tur and moong inched up over the previous month. Edible crude prices additionally registered a broad-based gain, led by mustard and palm oil," it stated.

Among key vegetables, onion prices increased sharply, and tomato prices inched up after two months of moderation, while potato prices recorded a month-on-month slide.

The central bank stated the views expressed in the Bulletin article are those of the authors and do not represent the views of the Reserve Bank of India.