Follow Us
India is closely tracking global sovereign bond yields, competition for international investment capital and the risk of higher global inflation, the Finance Ministry said in its August monthly economic report.
These developments are likely to affect the domestic currency, monetary policy, interest rates and current account financing.
“The global economy entered the second half of 2026 on a resilient, though uneven, footing,” the ministry said, noting that growth remained broadly steady even as the pace of global disinflation moderated and tensions in West Asia continued to influence energy markets.
ALSO READIndia’s Q1 GDP data today: Can growth accelerate to 7% despite global headwinds?
Against this backdrop, domestic economic activity remained resilient through July, although the pace of expansion moderated across some high-frequency indicators, including manufacturing and services PMI and e-way bill generation. Domestic demand remained firm, supported by healthy consumption and mobility indicators, while freight activity continued to provide support.
An intensifying El Niño, expected to peak in late 2026 and remain dominant through March 2027, warrants a cautious outlook on food inflation and agricultural output, particularly for upcoming Rabi crops such as wheat and mustard, it said.
Domestically, retail inflation edged up to 4.45% in July, while core inflation remained stable. Food inflation continued to rise, although vegetable price pressures softened.
ALSO READGeopolitics meets bad weather: How India faces a double squeeze on food prices
On external risks, the ministry said it was closely tracking developments in global sovereign bond markets. “The rise in yield can cut both ways,” it said, explaining that Indian bond yields could rise in tandem with global yields. If they do not, however, “the spread compression can put pressure on the domestic currency.”
It also flagged intensifying competition for global investment capital as developed economies seek funds to finance fiscal spending and refinance existing debt. “This matters for the sustainable level of the current account deficit in developing countries with respect to the ease of financing,” it said.
A potential rise in global inflation was identified as the third major risk. The ministry pointed to higher prices for electronic goods and food commodities, with the latter facing pressure from dry weather and supply-chain disruptions. Responses by developed-country central banks to these developments could also influence India’s monetary policy and domestic interest rates.
TOPICSeconomy newsThis article was first uploaded on August thirty-one, twenty twenty-six, at twenty-five minutes past nine in the night. © The Indian Express (P) Ltd