The military conflict in the Middle East, triggered by joint US and Israeli strikes on Iran, coupled with fresh US trade investigations, has increased volatility in global financial markets, the Reserve Bank of India (RBI) said on Monday.
The central bank, in its State of the Economy report, said that a prolonged period of war and high uncertainty would pose serious risks to the global economic outlook, “which was already in a state of flux prior to the recent events.” It, however, noted that India’s foreign exchange reserves remain adequate to cushion against external shocks.
What did the RBI bulletin say?
“The second advance estimates of GDP for FY26 indicate sustained resilience of the Indian economy. High-frequency indicators signal economic activity gaining momentum in February. System liquidity has remained comfortable and the total flow of financial resources to the commercial sector rose, with financing increasing from both bank and non-bank sources,” the RBI bulletin said.
The second advance estimates projected 7.6% GDP growth for FY26, an improvement over the 7.4% forecast in the first advance estimate. The report praised the government’s establishment of the Economic Stabilisation Fund stating it would further provide fiscal headroom and a buffer to proactively respond to global headwinds.
RBI on India’s heavy reliance on imported crude
The report said that India’s heavy reliance on imported crude oil amid the rapidly evolving regional crisis demands vigilant monitoring and timely policy responses to mitigate potential negative impacts. It also stated that the Indian economy’s ability to withstand external shocks has improved substantially in recent years, supported by robust growth momentum, solid macroeconomic fundamentals, and strong external buffers.
India has made progress in diversifying its crude oil import sources and expanding domestic refining capabilities, the report said. The article’s views reflect those of its authors and do not necessarily represent the official position of the RBI.
The conflict intensified following the US-Israel attacks on Iran, which led to a sharp disruption in oil supplies through the Strait of Hormuz, a vital chokepoint handling about 20% of global oil trade. Brent crude prices surged past $100 per barrel, reaching around $114 per barrel in recent trading sessions.
It further affirmed that India’s foreign exchange reserves remain sufficient to serve as a safeguard against external pressures. As of March 13, reserves stood at $709.8 billion.
The RBI report observed a broad-based and volatile upswing in commodity prices throughout March, driven by the onset of military hostilities in West Asia.