RBI spots early signs of moderation in ‘some sectors’ amid global headwinds

The Reserve Bank of India (RBI) on Friday flagged early signs of moderation in some sectors of the economy as elevated energy prices and global supply chain disruptions begin to weigh on activity.

Announcing the Monetary Policy Committee's decision to keep the benchmark repo rate unchanged at 5.25%, RBI Governor Sanjay Malhotra said the domestic economy has so far withstood the spillovers from the prolonged West Asia conflict, but strains are becoming increasingly visible.

"As for growth, elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity," the RBI said in its policy statement.

"While domestic demand remains resilient and manufacturing and services sectors activity continue to expand, there are incipient signs of moderation in some sectors as suggested by high frequency indicators," it added.

The central bank noted that private consumption has remained resilient and fixed investment has maintained momentum despite cost pressures.

Merchandise exports recorded strong growth in April, while services exports continued to be robust.

However, the RBI cautioned that higher energy and commodity prices, continued supply disruptions and rising freight and insurance costs could increasingly weigh on economic activity going forward.

The central bank also pointed to the likelihood of a deficient southwest monsoon and El Niño conditions, warning that these could affect agricultural activity and rural demand.

The RBI projected India's real GDP growth at 6.6% for 2026-27, while warning that prolonged supply chain disruptions, volatility in global financial markets and weather-related shocks pose downside risks to the outlook.

The MPC said there are "considerable risks" to its baseline assessment of growth and inflation due to uncertainty over the duration and intensity of the conflict in West Asia and the pace of restoration of global supply chains.

The committee also unanimously voted to keep the policy repo rate unchanged at 5.25% and retained the monetary policy stance at "neutral", saying it would remain data-dependent and closely monitor evolving risks to growth and inflation.