Mumbai (Maharashtra) [India], August 25 : The Indian economy continues to demonstrate resilience despite a fragile global environment marked by geopolitical tensions and trade-related uncertainties, with strong domestic demand and rising manufacturing and services activity providing support, the Reserve Bank of India said in its August Bulletin.
The RBI said the global economy is facing challenges from the conflict in West Asia and continuing trade-related uncertainties. The conflict has created risks for supplies of oil and other key commodities and has also weighed on business confidence. New US tariffs have added further uncertainty to international trade.
Despite these headwinds, it also added that the global economy continues to expand, although inflationary pressures remain.
It stated, "The global economy is confronting a fragile geopolitical environment and continuing trade-related uncertainties...Nevertheless, the domestic economy has demonstrated notable resilience to the ongoing global headwinds"
Against this backdrop, the RBI said the Indian economy continued to display strength, supported by buoyant domestic demand. Several indicators, including vehicle and tractor sales, pointed to sustained demand in the domestic economy.
It also mentioned that petroleum product consumption growth returned to be in positive territory after contracting for three consecutive months.
Industrial activity showed a sharper improvement in June, with industrial production recording its strongest growth in nearly two years. The improvement was supported by a broad-based acceleration in manufacturing activity.
The services sector also remained resilient, adding to the strength of domestic economic activity.
The RBI also noted an improvement in monsoon conditions. The south-west monsoon picked up in July after recording a deficit in June.
On the inflation front, RBI highlighted that headline consumer price inflation rose marginally, reflecting an increase in food inflation, while core inflation remained stable, the central bank said.
Liquidity conditions also improved during July and August, supporting credit growth and ongoing investment activity. The liquidity surplus narrowed during the second half of July due to tax outflows, but improved in August following a drawdown in government cash balances and measures taken to attract capital inflows.
The improvement in liquidity conditions also led to softer overnight money market rates towards the end of July and August. Yields on three-month Treasury bills remained largely range-bound, while yields on commercial papers and certificates of deposit softened.
The RBI said 10-year government security yields briefly hardened in July amid renewed geopolitical tensions in West Asia, volatile crude oil prices and higher US Treasury yields. Yields softened in early August on the back of robust capital inflows under the Reserve Bank's swap facilities, before rising again as crude oil prices increased.
The central bank said the global economic outlook continues to be shaped by geopolitical frictions in West Asia and fresh US tariffs, but India's domestic economy has continued to show resilience through strong demand and activity across manufacturing and services.