MUMBAI (Reuters) -The Indian economy remains resilient, backed by strong rural demand, but trade tensions with the United States could pose a downside risk to growth, the Reserve Bank of India said in its monthly bulletin released late on Thursday.
Average headline inflation, meanwhile, is seen remaining significantly below the central bank’s target of 4% this financial year, it said.
“Monetary policy, going forward, would continue to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path,” according to the bulletin.
India’s central bank expectedly held its key interest rate unchanged at 5.50% earlier in August, saying the economy remains steady, even though economists expect steep U.S. tariffs on Indian exports and subdued inflation to open room for limited further easing.
India’s retail inflation rate dropped to its lowest in eight years in July at 1.55%, due to falling prices of food, especially vegetables and pulses.
Last week, minutes of the central bank’s latest policy meeting showed that committee members flagged evolving risks from global trade tensions and tariffs as a key drag on growth, but said the economy remains resilient with the inflation outlook benign.
“Inflation outlook for the near term has become more benign than anticipated earlier,” the RBI said in the bulletin.
Favourable rainfall and temperature conditions, along with improved rural wages, are likely to help keep rural demand strong while rate cuts and fiscal measures should help overall demand in the economy, it said.
“On the other hand, persisting uncertainties related to India-U.S. trade policies continue to pose downside risk.”
(Reporting by Swati Bhat and Ira Dugal in Mumbai; Editing by Mrigank Dhaniwala)
