RBI flags global trade barriers as risk, says Indian economy remains resilient in FY26

The Reserve Bank of India (RBI) today said that trade barriers pose risk of “significantly scarring” the global economy, while the Indian economy continues to show resilience in Q1, FY26. In its June Bulletin released today, the RBI reported continued resilience in India’s industrial and services sectors during May, with rural demand also picking up. The central bank added that global economic prospects over the medium term will hinge on post-9 July trade-policy outcomes and unfolding geopolitical developments.

“Protracted trade policy uncertainties and rising trade barriers pose the risk of significantly scarring the global economy. The intensifying geopolitical tensions too may further debilitate the already weakened growth impulses. In this context, the trade policy outcomes in July, after the temporary tariff hiatus is over, and the future course of geopolitical events would likely shape the medium-term economic prospects,” the RBI said.

RBI noted in the bulletin that the Indian economy is showing resilience across the industry and services segments in the current financial year. “On the domestic front, the provisional estimates released in May have reaffirmed growth to be 6.5 per cent in 2024-25, with a significant sequential pickup in Q4. Various high-frequency indicators for May point to signs of resilient economic activity across the industrial and services sector,” the bulletin said.

“In fact, among the countries surveyed for the Purchasing Managers’ Index (PMI), overall expansion in activity was the highest in India with the expansion in new export orders witnessed in May being an outlier, amidst contraction seen in other major economies,” it added.  

RBI observed that manufacturing firms continued to operate at capacity levels above their long-term average. Meanwhile, high-frequency indicators for May pointed to a recovery in rural demand, supported in part by the robust performance of the agricultural sector.

"Forward-looking surveys of consumer sentiments show stable consumer confidence for the current period and improved optimism about the future,” it said.

“All of these indicate considerable resilience of the Indian economy, notwithstanding the global economic, trade, and geopolitical uncertainties. Domestic inflation remains benign with headline inflation remaining below the target for the fourth consecutive month in May. Record domestic crop production in 2024-25 agricultural season is translating into a sharp and sustained easing of food price inflation,” the RBI bulletin pointed out.  

The RBI noted that core inflation—CPI excluding food and fuel—remains stable, with signs of easing once the impact of volatile and elevated gold and silver prices is excluded, suggesting that underlying inflationary pressures are subdued.

It further stated that the headline CPI inflation forecast for FY 2025–26 has been revised downward by 30 basis points to 3.7%. According to the May 2025 survey of professional forecasters, headline inflation is expected to be 3.8% in 2025–26 and 4.2% in 2026–27. Additionally, the May 2025 round of the household inflation expectations survey showed a 20 basis point decline in one-year-ahead inflation expectations.