The economy remains “robust and resilient”, supported by strong domestic demand growth, benign inflation and healthy corporate balance sheets, Reserve Bank of India governor Sanjay Malhotra said. — Bloomberg
MUMBAI: India is set to sustain high economic growth, and authorities will take measures to shield it from potential shocks due to volatility in the global economy, the central bank says.
The economy remains “robust and resilient”, supported by strong domestic demand growth, benign inflation and healthy corporate balance sheets, Reserve Bank of India (RBI) Governor Sanjay Malhotra said in the central bank’s bi-annual Financial Stability Report released on Wednesday.
“Nonetheless, we recognise the near-term challenges from external spillovers and continue to build strong guardrails to safeguard the economy and the financial system from potential shocks,” he said.
India’s foreign exchange reserves, at nearly US$695bil, are the world’s fourth largest and cover more than 11 months of imports.
The central bank uses the reserves to smooth volatility in the exchange rate, which has intensified amid delays in a trade deal with the United States, India’s largest export market.
The RBI cut its policy rate to a more than three-year low earlier this month to support growth and offset the impact of punitive US tariffs on Indian shipments.
It also signalled an intention to cut rates further if inflation remained soft even as it injected substantial liquidity into bond markets to ease borrowing costs.
Furthermore, uncertainty over an agreement with Washington has pressured the rupee, which has tumbled nearly 5% this year.
The economy grew a robust 8.2% in the July to September quarter, but the outlook remains clouded by global factors.
Stress tests on Indian banks showed that asset quality may improve, as lenders have adequate capital to withstand potential stress, the report said.
Bad loans at 46 Indian banks are likely to drop to a multi-decade low of 1.9% of total advances by March 2027 from 2.1% in September this year, according to the report.
Even under adverse and severe stress scenarios, asset quality is expected to remain relatively healthy at 3.2% and 4.2%, respectively. — Bloomberg
