External spillovers, weather-related events could pose downside risks to growth: RBI Governor Malhotra

Indian Express

10 hours ago

Despite strong domestic growth drivers and macroeconomic fundamentals, external spillovers and weather-related events may pose risks to India's growth, RBI Governor Sanjay Malhotra warned on Monday.
He, however, said that the outlook for inflation remains benign, with consumer price inflation (CPI) aligning to the Reserve Bank of India's (RBI) target of 4 per cent with a band of +/-2 per cent.
'…the Indian economy remains a key driver of global growth. Growth momentum is buoyed by strong domestic growth drivers, sound macroeconomic fundamentals and prudent policies. Nonetheless, external spillovers and weather-related events could pose downside risks to growth,' Malhotra wrote in the foreword of the Financial Stability Report (FSR) for June 2025.
The RBI has projected real gross domestic product (GDP) growth at 6.5 per cent for FY2026.
While announcing the June policy, Malhotra said that the growth remains lower than the RBI's aspirations amidst a challenging global environment and heightened uncertainty.
The announcement of large tariffs by the US administration in April has set in motion a new paradigm in trade and economic policy, Malhotra said, adding that geopolitical risks remain elevated.
'The ensuing policy uncertainty and unpredictability will influence global growth. International agencies, including the IMF (International Monetary Fund), the OECD (Organisation for Economic Co-operation) and the World Bank, have revised growth downwards,' the RBI Governor wrote in the half-yearly FSR.
Near-term global financial stability risks have increased. The market turbulence in April was a stark reminder of how existing vulnerabilities in the global financial system are amplified by sudden shocks. Though financial markets have stabilised after this episode, they remain volatile and highly sensitive to economic and geopolitical developments,' he said.
Globally, risks associated with elevated public debt and possibilities of further corrections in asset prices remain high, the RBI Governor noted.
'There are many structural shifts that are reshaping the global economy, including growing fragmentation in trade, rapid technological disruption, ongoing climate change and protracted geopolitical hostilities,' he said.
They, Malhotra said, make economic forecasts difficult and policy interventions challenging. Therefore, even as they navigate through the fog of uncertainty, it is imperative for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and financial systems.
On inflation, the RBI Governor said that the outlook for inflation is benign and there was a greater confidence in the durable alignment of inflation with the Reserve Bank's target. Under the flexible inflation targeting (FIT) framework, the RBI has been mandated by the government to maintain CPI at 4 per cent with a band of +/-2 per cent.
Headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), moderated to 2.8 per cent in May 2025 (the lowest since February 2019) from 3.2 per cent in April.
Malhotra further said the resilience of the domestic financial system is continuously improving, bolstered by strong capital buffers, low non-performing loans and robust profitability.
Results of stress tests reaffirm the strength of the banking and non-banking sectors with capital levels projected to remain well above the regulatory minimum even under adverse shock scenarios. The healthy balance sheets of corporates, banks and non-bank financial companies (NBFCs) augur well for the economy, he said.