RBI Cautions on Global Tensions Even as Indian Economy Strengthens

RBI Cautions on Global Tensions Even as Indian Economy Strengthens
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RBI Sees Steady Growth, Flags Global Challenges in June 2025 Update

The Reserve Bank of India (RBI), in its June 2025 bulletin, noted that India's economy displayed significant resilience in May 2025 amid a backdrop of global uncertainties and geopolitical tensions affecting the outlook, with high-frequency indicators showing encouragement across key sectors.

Domestic Momentum Remains High

Industrial and Services Activities: High-frequency indicators—like PMI surveys, e-way bill numbers, GST collections, toll receipts, and digital payment volume—continued registering expansionary conditions in both industrial and services sectors. The services PMI stood at around 58.8 in May, indicating continued strength for the sector.

Agricultural Boom: The bumper output of 2024-25, along with an excellent performance of summer crops, had signaled strength in rural India. Such developments kept the food inflation subdued, aiding headline CPI to fall to 2.82% in May, which is the lowest since early 2019.

Inflation Undershoots Targets

The headline retail inflation remained way below the RBI ceiling of 4% for the fourth consecutive month, as it registered at 2.82% in May, which is considered a 75-month low. This was majorly caused by lenient food prices. Core inflation was also subdued once some highly volatile items such as gold and silver were excluded.

Such a benign inflation environment supported the comfort of RBI policymakers in continuing with accommodation without inducing consumer-price pressure. 

Bold Monetary Easing

Utilizing the buffer nature of inflation, the RBI had circumvented expectations with a surprise rate cut of 50 basis points in early June, coupled with a drastic 100 basis points cut in the cash reserve ratio (CRR). The purpose was to give a thrust to growth amid international headwinds. 

Governor Sanjay Malhotra and the Monetary Policy Committee (MPC) restated their willingness to stay data-dependent and hence believed current financial conditions were conducive to sound credit transmission.

Global Headwinds Loom

RBI outlined key external risks constraining growth in India. With the global tariff truce ending in July, the revival of protectionist trade measures may affect exports and supply chains. Continuing geopolitical tensions, from the Iran–Israel conflict in particular, endanger global stability and commodity trade.

Moreover, mounting global uncertainty could increase risk aversion among private investors, possibly delaying large investments. Governor Malhotra stressed the necessity of supporting policy to build and preserve business confidence and provide economic momentum. 

Outlook: Cautious Optimism 

The RBI expressed cautious optimism. On the other hand, the domestic economy shows good momentum, with robust GDP growth of about 6.5 percent for FY25 and an impressive 7.4 percent rise in Q4.

Low inflation allows for supportive economic policies, contributing to stability in financial markets and a strong agricultural sector. However, future performance depends on addressing global trade and geopolitical issues. The RBI will focus on data to balance growth and inflation risks.

Summary

The RBI, therefore, continues to keep a close watch on the global outlook, which is a major determinant of the medium-term outlook on the domestic economy amid otherwise good-performing internal engines of the economy, viz., manufacturing, services, and rural dynamics.

The bank will monitor new data carefully and stand ready to change course as necessary while remaining focused on sustaining growth and keeping prices stable.

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