India’s economy resilient amid global uncertainty from 'twin shocks': RBI bulletin

India’s economy showed signs of resilience in May despite mounting global headwinds, as strong domestic indicators across industrial, services, and agriculture sectors buoyed activity, the Reserve Bank of India (RBI) said in its June 2025 Bulletin.

High-frequency data suggested continued strength in economic activity, supported by benign inflation and accommodative financial conditions.

The global economy is in a state of flux, reeling from the twin shocks of trade policy uncertainties and a spike in geopolitical tensions, the RBI article said.

"In this state of elevated global uncertainty, various high-frequency indicators for May 2025 point towards resilient economic activity in India across the industrial and services sectors," it said.

Headline consumer price inflation remained below the RBI’s 4% target for the fourth consecutive month in May, with forecasts revised downward for the fiscal year.

The central bank's Monetary Policy Committee (MPC) responded by cutting the policy repo rate by 50 basis points to 5.50% at its June meeting, in a 5-1 majority vote to stimulate domestic consumption and investment.

The MPC also shifted its policy stance from "accommodative" to "neutral," citing limited room for further easing following cumulative rate cuts of 100 bps since February.

“A likely undershoot of inflation to below the target rate, at the margin, during the current financial year and evidence of further anchoring of inflation expectations provided the MPC with the policy space to decisively focus on growth by frontloading the rate cut,” the RBI noted in the bulletin.

India’s real GDP growth for FY 2025-26 was retained at 6.5%, while the CPI inflation forecast was revised downward by 30 basis points to 3.7%.

A May survey of professional forecasters projected inflation at 3.8% for FY26 and 4.2% for FY27. Household surveys also indicated easing inflation expectations.

However, the RBI cautioned that the global environment remains highly uncertain, with trade policy ambiguities and escalating geopolitical tensions posing risks to the global recovery.

The end of a temporary tariff hiatus in July and evolving geopolitical developments are likely to influence medium-term global economic prospects.

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