The global economy continued to be shadowed by uncertainties in West Asia. Domestic economic activity exhibited resilience in April, with industrial and services sectors maintaining strength across several segments. In agriculture, summer sowing progressed well, supported by above normal pre-monsoon rainfall and comfortable reservoir levels. CPI inflation rose to 3.5 per cent in April, driven mainly by food inflation, while core inflation remained steady. In March, net foreign direct investment remained positive for the second consecutive month. Foreign portfolio investors continued to remain net sellers in April and May, though the pace of outflows moderated. Introduction The global economic activity in April continued to be shadowed by uncertainties in West Asia and disruption of energy supplies and trade flows. Concerns on its macroeconomic implications resulted in heightened volatility in the various segments of the financial markets. Global economic activity showed modest improvement over March. However, the pace of expansion remained subdued amidst rising input costs, supply chain bottlenecks and weak business sentiment. Constricted shipping routes and trade flows increased supply chain pressures to their highest levels since 2022. Commodities, particularly across the energy markets, remained under strain. Higher transportation and logistics costs and refinery shutdowns exerted upward pressure on metals, fertilisers, and food prices, resulting in a broad-based increase in global commodity prices. Gold prices remained rangebound, with fluctuations mainly driven by the revival of safe-haven demand of the US dollar and inflationary pressures. Equity markets rebounded in April supported by momentum in the technology-related stocks and improving risk appetite. However, markets remained volatile on vacillating reports of West Asia war and negotiation progress. Bond yields hardened across economies, reflecting inflationary concerns and elevated debt. In a scenario of heightened uncertainties on growth and inflation outlook, major central banks opted to maintain status quo on their policy rates. Domestic economic activity in April showed resilience notwithstanding deceleration in some of the indicators. Industrial and services activity stayed strong in many segments. Early results of listed private non-financial companies for Q4:2025-26 also showed an improvement in business performance over the previous quarter, with aggregate sales and operating profit recording a double-digit growth. In the agriculture sector, rapid progress of summer sowing was supported by above normal pre-monsoon rainfall and sufficient reservoir storage levels. However, a higher probability of above-normal minimum temperatures and unseasonal rains in some parts of the country could pose risks to the harvesting of remaining rabi crops. The current public foodgrain stocks remain well above the buffer norms ensuring domestic food security. Consumer Price Index (CPI) based inflation rose to 3.5 per cent in April. The rise was driven mainly by food. Core inflation (CPI excluding food and fuel) remained steady indicating limited pass-through of higher input cost conditions. The merchandise trade deficit widened in April 2026 over March 2026 with rising import bill primarily on account of crude oil and gold imports. The trade deficit also registered an increase albeit marginally vis-à-vis April 2025. System liquidity moderated slightly in May after easing in April on account of a pickup in government spending. Reflecting the prevailing easy liquidity conditions, the weighted average call rate (WACR) generally remained below the policy repo rate during April and May. Yields on treasury bills and dated government securities edged up in May. Yields on commercial paper and certificates of deposit remained benign in early April before firming up since the second half of the month. Corporate bond yields hardened in May, tracking government bond yields, whereas their spreads exhibited mixed trends. Indian equity markets rebounded in April amidst the announcement of the US-Iran ceasefire, although lingering geopolitical uncertainties limited the gains. Markets remained subdued in May so far, inter alia, due to sustained tensions in West Asia and high oil prices. Foreign portfolio investors (FPIs) remained net sellers, but the magnitude of sell-off moderated from the elevated levels observed in the previous month. During 2025-26, both gross and net foreign direct investment (FDI) inflows were higher than the previous year. In March, net FDI remained positive for the second consecutive month, despite a deceleration in gross FDI, on account of relatively low repatriation and outward FDI. The rupee depreciated in May, with renewed geopolitical tensions and elevated crude oil prices exerting pressure. Against this backdrop, the remainder of the article is structured into four sections. Section II covers the evolving developments in the global economy. Section III provides an assessment of domestic macroeconomic conditions. Section IV encapsulates financial conditions in India, while Section V presents the concluding observations. II. Global Setting Global uncertainty remained elevated, although geopolitical risk index softened in April, reflecting the evolving geopolitical dynamics in the West Asia (Chart II.1a). A temporary ceasefire announced in April eased geopolitical tensions, and also led to some moderation in financial market volatility from the peak witnessed in March. However, financial market volatility in emerging economies resurged in May, as many economies remained vulnerable to elevated energy prices and external shocks (Chart II.1b). Supply chain pressures in April rose to their highest level since July 2022, as the West Asia conflict significantly disrupted global trade flows (Chart II.1c). The global composite PMI signalled an improvement in the pace of overall economic activity in April, after the significant deceleration observed in March. However, the pace of expansion remained weak, reflecting the combined effects of supply chain delays, rising input costs and subdued business confidence. The manufacturing sector outpaced services for the second consecutive month. This was partly driven by precautionary stockpiling, with orders front-loaded to mitigate further supply disruptions and price pressures. New export orders continued to be in contraction in April for the second consecutive month attesting to a subdued international trade amidst the continuation of West Asia conflict. Trends between manufacturing and services export orders varied markedly. While there was further dent in services, manufacturing managed to remain in expansion mode on account of stock building (Table II.1).  Among major advanced economies (AEs), the composite PMI increased sequentially in April in the US and the UK, while it decreased in the Euro area and Japan. Among major emerging markets and developing economies (EMDEs), business activity expanded in India and China. Trends in new export orders remained divergent across regions (Chart II.2). 
 Global commodity markets remained constrained in April, as the continued standstill in tanker traffic through the Strait of Hormuz disrupted global supply chains, particularly energy shipments and led to increased freight costs. The World Bank Commodity Price Index rose sharply, driven by higher energy, fertiliser, and base metals prices. The Food and Agriculture Organization (FAO)’s Food Price Index also increased in April, driven by higher vegetable oil, meat and cereal prices (Chart II.3a). The Bloomberg Commodity Index rose in April and May, led by energy, agriculture, and base metals prices. Brent crude oil prices drifted lower in early April amidst temporary ceasefire, before firming up later in the month as the West Asia conflict re-escalated. Brent crude prices remained volatile in May amidst evolving geopolitical developments, with an overall upward bias. Gold prices displayed mixed movements, rising in early April on a softer US dollar and safe-haven demand, before easing following lower expectations of monetary easing by the US Federal Reserve (Chart II.3b).  Prices of commodities for which the Strait of Hormuz is a critical transit route remained elevated in April and early May (Chart II.4). The base metal prices, including aluminium, zinc and nickel, rose due to supply disruptions and higher fuel costs. In April, headline inflation generally rose across major AEs and EMDEs. Among major AEs, inflation in the US rose to its highest level in three years, driven by a sharp increase in fuel prices. In the Euro area, inflation increased to its highest level since September 2023, driven by higher energy costs and persistently elevated services. Inflation, however, moderated in both the UK and Japan, supported by government measures to ease energy costs (Chart II.5a). Among major EMDEs, inflation increased in China, South Africa and Brazil, largely on account of higher energy prices (Chart II.5b).  Global equities rebounded in April, recovering from the selloffs in March, supported by improved risk appetite and gains in artificial intelligence (AI)-related stocks in select advanced and emerging market economies. The surge continued in May, despite some pushback from higher inflation concerns. Among the AEs, gains were led by the US on the back of strong corporate earnings and continued strength in technology stocks. Emerging market equities also recorded robust returns, backed by the technology sectors. However, equity markets remained volatile on vacillating reports of West Asia war and negotiation progress (Chart II.6a).
 The US 10-year Treasury yield remained range-bound during the first half of April but hardened thereafter as rising energy prices, along with robust first-quarter GDP data release tempered rate cut expectations. Emerging market yield spreads narrowed in April and May amidst improving risk sentiment and a weaker US dollar (Chart II.6b). The US dollar depreciated during April as de-escalation talks reduced its safe-haven demand. In May, the US Treasury yields and the dollar strengthened amidst rising expectations of a policy rate hike by the US Fed (Chart II.6c). Portfolio flows to emerging markets increased in April, reversing the outflows recorded in March, supported by improving risk appetite and portfolio diversification away from AEs (Chart II.6d).  In April, major central banks largely maintained a status quo on policy rates, reflecting a cautious approach amidst ongoing geopolitical tensions in West Asia (Chart II.7). Among major AEs, the US, the UK, the Euro area and Japan kept policy rates unchanged. Among major EMDEs, China, Indonesia and Thailand held rates steady, while Brazil and Russia reduced policy rates by 25 and 50 bps, respectively. Philippines raised its benchmark policy rate to contain rising inflationary pressures. In May so far, China, Sweden and Malaysia held their rates steady, while Mexico lowered its benchmark interest rate by 25 bps. Australia and Indonesia raised their benchmark rates by 25 bps and 50 bps, respectively. III. Domestic Developments The Indian economy demonstrated strength despite persisting geopolitical and trade related uncertainties. The available high-frequency indicators of economic activity in April generally suggest sustained demand, notwithstanding challenges in a few sectors. Industrial activity remained strong and the services sector showed resilience. Early results of listed private non-financial companies for Q4:2025-26 reveal an improvement in business performance, with aggregate sales recording a double-digit growth. Aggregate Demand Economic activity showed a mixed trend in April, as evidenced from several high-frequency indicators such as fuel consumption, trade, and logistics. E-way bills continued to achieve double-digit growth backed by GST rate rationalisation. While petrol and diesel consumption continued to grow, overall petroleum consumption declined in April due to a sharp fall in the consumption of naphtha, liquified petroleum gas (LPG) and other petroleum products. Higher temperatures led to a sharp increase in electricity demand. The monthly number of toll transactions continued to decline after the introduction of the FASTag Annual Pass scheme in August 2025.1 Digital payments registered steady growth in both transaction value and volume (Table III.I). 
Demand remained broad-based and supported by rural markets. Automobile sales in rural areas continued to grow at double digit in April, although showing some sequential moderation. The tractors and two-wheelers sales within automobile segment in rural and passenger vehicles sales in urban areas continued to witness robust growth. With an increase in prices of aviation turbine fuel, the air passenger traffic declined further (Table III.2). Labour market conditions witnessed some moderation in Q4:2025-26.2 The labour force participation rate and worker population ratio under the current weekly status (CWS) declined along with marginal rise in the unemployment rate, largely driven by rural areas. It was, however, accompanied by an increase in the share of regular salaried employment, with higher employment in the secondary and tertiary sectors.3 In April, the all-India unemployment rate (based on CWS), witnessed an increase driven by rural areas, while the urban unemployment rate declined.4 The labour force participation rate fell in both rural and urban areas, whereas the worker population ratio declined in rural areas and remained unchanged in urban areas. The PMI employment for manufacturing and services rose to a ten-month high in April driven by new business orders. The Naukri JobSpeak Index also showed resilient job market with growth in white-collar hiring witnessing some momentum led by insurance, real estate, and healthcare. Hiring in the IT sector remained stable, though banking sector saw some moderation. The demand for work under the Mahatma Gandhi National Rural Employment Guarantee Scheme5 (MGNREGS) continued to decline for the tenth consecutive month, suggesting likely improved employment opportunities in the rural areas (Table III.3).   Trade The merchandise trade deficit widened in April 2026 over March 2026 primarily on account of crude oil and gold imports. On a year-on-year basis, the trade deficit increased albeit marginally vis-à-vis April 2025, mainly due to rise in imports of electronic goods, gold and machinery (Chart III.1).6 The surge in imports of precious metals prompted the Government to raise custom duties on gold, silver, and platinum.7 India is witnessing a trade reconfiguration amidst the emerging geopolitical situation. Its trade through Strait of Hormuz which had declined sequentially in March, went up in April 2026.8 India’s exports to China continued to grow in double digits (y-o-y) since April 2025.9 India’s exports to the US grew in April 2026, reversing the contractionary trend witnessed since September 2025 (except in November).10 Net services exports grew in March, on robust export growth alongwith imports registering a decline from the sharp growth in the previous month (Chart III.2).11 Growth in software and business services drove the increase in services exports, while a dip in travel and transport led to contraction in services imports.
Aggregate Supply Agriculture The sowing in the summer (zaid) season has been progressing well, surpassing the full season normal acreage and is higher than the previous year. Acreage under all major crops is higher, except for rice (Chart III.3).12 Industry and Services Quarterly results of listed private non-financial companies13 for Q4:2025-26 reflect an improvement in business performance, with aggregate sales recording a double-digit growth. Sales of listed private manufacturing companies grew, supported by automobiles and iron and steel industries. Within services sector, sales growth of both IT and non-IT services maintained positive momentum despite global uncertainties. Growth in sales of non-IT service companies was mainly driven by wholesale and retail trade industry (Chart III.4).  Despite significant increase in input cost, operating profit growth of manufacturing companies remained broadly stable during Q4:2025-26. However, the operating profit margin softened during the quarter. The operating profit growth of non-IT services companies rose sharply, against modest growth recorded during the previous quarter. The operating profit growth of IT companies further picked up in Q4. The operating profit margin, however, moderated sequentially for both IT and non-IT companies during the quarter (Chart III.5). During Q4:2025-26, the revenue growth for listed banking and financial sector companies increased. Y-o-y net profit growth for these companies surged largely reflecting a decline in other provisions and contingencies (Chart III.6). Monthly Indicators of Industrial Activity Based on high frequency indicators, industrial activity exhibited resilience in April, despite ongoing West Asia conflict. The index of eight core industries witnessed an uptick, supported by cement, steel and electricity production. Manufacturing PMI also rose marginally as cost pressures and geopolitical spillovers kept growth momentum in new orders and output slow. Automobile production continued to record strong growth across major segments, with double-digit growth in passenger vehicles, three-wheelers and two-wheelers, supported by robust demand. Further, capital goods imports saw strong double-digit growth in April, signalling sustained capex momentum (Table III.4). 
 India is witnessing a shift in consumer preferences towards electric mobility, aided by government policy intervention, improving public charging infrastructure and the long-term sustainable benefits associated with electric vehicles (EVs). In April, EV sales surged in volume terms, even as their market penetration dipped due to comparatively stronger sales of conventional vehicles (Chart III.7). The EV registration, however, was observed to be concentrated in five states – Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, and Rajasthan – together accounting for about 51 per cent of total EVs registrations in April 2026. Monthly Indicators of Services Activity India’s services sector remained resilient in April. Services PMI accelerated, supported by a boost in transportation activity enabled by domestic suppliers and new business orders. The pace of export orders displayed weakness, dampened by the war and subdued inbound tourism. International air passenger traffic continued to contract sharply, reflecting weak external demand amidst geopolitical tensions. Retail commercial vehicle sales maintained a steady growth in the backdrop of strong freight and infrastructure demand. Port cargo growth recovered after last month’s dip caused by West Asia trade disruptions (Table III.5).
Inflation CPI headline inflation14 marginally increased to 3.5 per cent (y-o-y) in April from 3.4 per cent in March, primarily driven by higher food inflation.15 Core (CPI excluding food and fuel16) inflation remained steady at 3.7 per cent. Excluding precious metals, core inflation inched up marginally to 2.2 per cent, suggesting that underlying price pressures remained broadly contained (Chart III.8). Six out of the twelve divisions witnessed a sequential increase in inflation (Chart III.9). The ‘restaurants and accommodation services’ division recorded a strong increase, primarily driven by higher commercial LPG prices and input costs. Inflation in the ‘personal care, social protection and miscellaneous goods and services’ division remained the highest, despite some softening. In terms of spatial distribution, inflation rose marginally in both urban and rural areas in April. Overall, inflation ranging from 0.7 per cent to 5.8 per cent was witnessed across states/UTs. Majority of the states, however, continued to experience inflation below 4 per cent (Chart III.10). The southern states experienced higher retail inflation compared to the national average, largely driven by food price pressures, including a sharp rise in coconut (copra) prices. High-frequency food prices data up to May 19, point towards a marginal uptick in both wheat and rice prices. Within pulses, prices remained broadly stable while gram prices continued to declined. Edible oils prices continued to witness a broad-based increase largely attributable to higher import costs. Within major vegetables, tomato prices increased sharply due to intense summer heat causing crop damage in major producing areas (Chart III.11).
The conflict in West Asia led to significant increases in global oil and gas prices. The price of the Indian basket crude oil remained elevated, resulting in large under-recoveries of the oil marketing companies (OMCs) [Chart III.12]. In view of this, the OMCs increased the retail prices of key petroleum products in two rounds – first on May 15 and again on May 19 (Table III.6). Reflecting price pressures from West Asian conflict, Wholesale Price Index (WPI) inflation rose to 8.3 per cent in April from 3.9 per cent in March, recording a 42-month high. The sharp increase in WPI inflation in April was largely driven by fuel and power group, though other groups also witnessed sharp rise. Top 10 items, with a weight of 14.7 per cent in WPI, contributed 63 per cent to the April WPI inflation. These items serve as crucial inputs to a variety of industries ranging from agriculture, logistics, petrochemicals to aviation. The latest WPI data is indicative of incipient price pressures in India. 
| Table III.6: Retail Prices of Petroleum Products Increased in May | | Item | Unit | Domestic Prices | Month-over-month
(per cent) | | May-25 | Apr-26 | May-26^ | Apr-26 | May-26^ | | Petrol | ₹/litre | 101.1 | 101.2 | 105.1 | 0.0 | 3.9 | | Diesel | ₹/litre | 90.5 | 90.5 | 94.5 | 0.0 | 4.3 | | Kerosene (subsidised) | ₹/litre | 41.5 | 46.8 | 46.8 | 0.0 | 0.0 | | LPG (non-subsidised) | ₹/cylinder | 863.3 | 923.3 | 923.3 | 7.0 | 0.0 | Note: 1. ^: Updated up to May 19, 2026.
2. Other than kerosene, prices represent the average Indian Oil Corporation Limited (IOCL) prices in four major metros (Delhi, Kolkata, Mumbai and Chennai). For kerosene, prices denote the average of the subsidised prices in Kolkata, Mumbai and Chennai.
Sources: IOCL; Petroleum Planning and Analysis Cell (PPAC); and RBI staff calculations. | The PMI data for April recorded an increase in input prices for manufacturing firms due to higher prices for aluminium, chemicals, electrical components, fuel, and other products. Output prices also accelerated. In the services sector, however, the increase in both output and input prices moderated (Chart III.13). IV. Financial Conditions Liquidity conditions eased in April as pressures from tax outflows waned and government spending rose.17 Surplus system liquidity18 moderated in May (up to 21st) as currency in circulation (CiC) picked up and government spending stabilized. Reflecting moderating liquidity conditions19, banks’ use of the standing deposit facility declined in May compared to April, while recourse to the marginal standing facility increased to an extent (Chart IV.1).20 With the aim of injecting durable liquidity into the system, the Reserve Bank decided to conduct a 3-year USD/INR buy/sell swap of US$ 5 billion on May 26, 2026. Money Market The weighted average call rate (WACR) traded in the lower half of the policy corridor for most of April and often below the policy rate in May (up to the 21st) [Chart IV.2a].21 Overnight rates in the collateralised segments, as measured by the secured overnight rupee rate, generally moved in tandem with the WACR. The average yields on treasury bills increased marginally in May (up to 21st) from April. Furthermore, yields on commercial papers (CPs) and certificates of deposit (CDs) after witnessing an easing during the first half of April, firmed up since the second-half amidst higher demand for funds (Chart IV.2b).22 The spread between the 3-month commercial paper and 91-day treasury bill widened.23 Government Securities Market The government security (G-sec) yields were volatile and largely influenced by global cues (Chart IV.3a). Yields eased in April following the ceasefire but firmed up mildly across the tenors in May (up to 21st) [Chart IV.3b].24
Corporate Bond Market Corporate bond yields hardened across tenors and rating spectrums in May (on 20th) over April (30th), tracking government bond yields and crude oil prices, while the spreads exhibited mixed trend (Table IV.1). On a cumulative basis, total issuances were lower in 2025-26 as compared to the previous year, reflecting elevated corporate bond yields and higher borrowing costs.25
| Table IV.1: Corporate Bond Yields Hardened | | | Interest Rates
(Per cent) | Spread (bps) | | (Over Corresponding Risk-free Rate) | | Instrument | April 30, 2026 | May 20, 2026 | Variation
(bps) | April 30, 2026 | May 20, 2026 | Variation | | 1 | 2 | 3 | (4 = 3-2) | 5 | 6 | (7 = 6-5) | | (i) AAA (1-year) | 7.41 | 7.88 | 47 | 167 | 185 | 18 | | (ii) AAA (3-year) | 7.60 | 7.76 | 16 | 126 | 100 | -26 | | (iii) AAA (5-year) | 7.69 | 8.0 | 31 | 94 | 97 | 3 | | (iv) AA (3-year) | 8.35 | 8.59 | 24 | 227 | 183 | -44 | | (v) BBB minus (3-year) | 11.93 | 12.20 | 27 | 545 | 544 | -1 | | Source: FIMMDA. | Money and Credit During April 2026, reserve money (adjusted for cash reserve ratio) maintained its growth trajectory, with CiC registering a double-digit growth26 since December 202527. The money supply growth also remained elevated (Chart IV.4).28 Scheduled commercial banks’ (SCBs’) credit growth remained relatively stable at a higher level. However, the deceleration of the deposit growth in April has led to the widening of the wedge between credit and deposit growth (Chart IV.5).29 Non-food bank credit flow softened in April 2026 in line with the past (Table IV.2a). In 2025-26, the total outstanding credit to the commercial sector increased by 15.0 per cent on a y-o-y basis, with non-bank sources registering a growth of 13.3 per cent. As on April 30, 2026, the outstanding non-food bank credit increased by 15.8 per cent vis-à-vis a growth of 9.8 per cent a year ago (Table IV.2b). In March 2026, non-food bank credit30 increased across key sectors (Chart IV.6). Agriculture and industrial credit growth continued their upward trajectory. Credit to both large industries and MSMEs grew faster. Credit flow to the services sector also remained buoyant, driven by bank lending to NBFCs, trade, and commercial real estate. Within personal loans, housing, vehicle and gold loans sustained robust credit growth. Deposit and Lending Rates In response to the cumulative 125 basis points (bps) reduction in the policy repo rate, SCBs have adjusted both repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR) downward during February 2025 to March 2026. The pass-through to weighted average lending rates (WALRs) has been robust during the ongoing easing cycle. The transmission to lending rates on fresh and outstanding loans has been broad-based across sectors (Chart IV.7). On the deposit side, transmission to the weighted average domestic term deposit rates (WADTDRs) has been relatively less due to firming-up of bulk deposit rates in recent months (Table IV.3). | Table IV.2a: Flow of Financial Resources to Commercial Sector in India | | (₹ lakh crore) | | Source | April-March | Up to April 30 | | 2024-25 | 2025-26 | 2025-26 | 2026-27 P | | A. Non-Food Bank Credit | 18.08 | 29.19 | -1.49 | -1.83 | | B. Non-Bank Sources (B1+B2) | 18.54 | 17.85 | 0.94 | 0.74 | | B1. Domestic Sources | 14.91 | 12.66 | 0.94 | 0.74 | | B2. Foreign Sources | 3.63 | 5.19 | – | – | | C. Total Flow of Resources (A+B) | 36.62 | 47.04 | -0.55 | -1.09 | P: Provisional; -: Not available.
Notes: 1. Figures in the columns might not add up to the total due to rounding off of numbers.
2. For detailed notes and data, please refer to Current Statistics Table No: 18(a).
Sources: RBI; SEBI; AIFIs; and RBI staff estimates. |
| Table IV.2b: Outstanding Credit to Commercial Sector | | (₹ lakh crore; Figures in parentheses are y-o-y percentage changes) | | Source | At End-March | As on April 30 | | 2025 | 2026 | 2025 | 2026 P | | A. Non-Food Bank Credit | 183.72 | 212.91 | 182.23 | 211.08 | | | (10.9) | (15.9) | (9.8) | (15.8) | | B. Non-Bank Sources (B1+B2) | 89.25 | 101.09 | 2.23 | 2.10 | | | (15.1) | (13.3) | (70.6) | (-5.7) | | B1. Domestic Sources | 66.37 | 75.11 | 2.23 | 2.10 | | | (17.3) | (13.2) | (70.6) | (-5.7) | | B2. Foreign Sources | 22.87 | 25.98 | – | – | | | (9.3) | (13.6) | | | | C. Total Credit (A+B) | 272.97 | 314.00 | 184.45 | 213.18 | | | (12.3) | (15.0) | (10.3) | (15.6) | P: Provisional; -: Not available.
Notes: 1. Figures in the columns might not add up to the total due to rounding off of numbers.
2. Data on non-bank sources excludes issuances of equities and hybrid instruments under domestic sources and foreign direct investment in equities under foreign sources.
3. Flows based on outstanding data may not tally with the flows provided in Table IV.2a due to:
(a) Merger of HDFC Limited with HDFC Bank on July 1, 2023;
(b) Conversion of some Housing Finance Companies into Non-Banking Financial Companies; and
(c) Valuation effect in case of foreign sources.
4. For detailed notes and data, please refer to Current Statistics Table No: 18(b).
Sources: RBI; SEBI; AIFIs; and RBI staff estimates. |
 Across bank-groups, pass-through to lending rate was higher in private banks compared to public sector banks and vice versa for deposit rates during the current easing cycle (Chart IV.8). Equity Markets Indian equity markets rebounded in April following the announcement of the US-Iran ceasefire.31 Markets, however, declined in May (up to 21st) amidst concerns over the durability of the US-Iran ceasefire and elevated crude oil prices (Chart IV.9). | Table IV.3: Transmission to Banks’ Deposit and Lending Rates | | (Basis points) | | | | Term Deposit Rates | Lending Rates | | Period | Repo Rate | WADTDR-Fresh Deposits | WADTDR-Outstanding Deposits | EBLR | 1-Year MCLR (Median) | WALR - Fresh Rupee Loans | WALR-Outstanding Rupee Loans | | Overall | Interest Rate Effect# | | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | | Tightening Cycle May 2022 to Jan 2025 | 250 | 259 | 206 | 250 | 175 | 182 | 191 | 115 | | Easing Cycle Feb 2025 to Mar 2026 | -125 | -55 | -47 | -125 | -60 | -93 | -80 | -88 | #: Calculated at January 2025 weights.
WALR: Weighted average lending rate; WADTDR; Weighted average domestic term deposit rate;
MCLR: Marginal cost of funds-based lending rate; EBLR: External benchmark-based lending rate.
Note: Data on EBLR pertain to 32 domestic banks.
Source: RBI. |
External Sources of Finance During 2025-26, foreign direct investment (FDI) inflows were higher than the previous year, both in gross and net terms.32 In March, net FDI remained positive for the second consecutive month, though gross inward FDI registered deceleration. Outward FDI declined in March, with more than half of the flows directed to Singapore, the UAE, and the Netherlands (Chart IV.10).
In April and May so far (up to 20th), foreign portfolio investors (FPIs) remained net sellers, particularly in the equity segment, amidst persistent geopolitical uncertainty and continued tensions in West Asia (Chart IV.11).33 Registrations and net inflows of external commercial borrowings (ECBs) moderated during 2025-26 (Chart IV.12).34 Despite a moderation in overall borrowings, a significant share was earmarked for capital expenditure by corporates. India’s foreign exchange reserves remain comfortable, extending cover for goods imports for around 11 months35 and 90 per cent of the external debt outstanding as at end-December 2025 (Chart IV.13).36
Foreign Exchange Market The Indian rupee depreciated in April, though the decline was limited by the temporary ceasefire announcement and various measures undertaken by RBI37 (Chart IV.14). Thereafter, the INR broadly mirrored the movement in crude oil prices, reflecting the developments in West Asia. In real effective terms, the Indian rupee depreciated in April due to depreciation of INR in nominal effective terms and relatively lower price index in India vis-à-vis its major trading partners (Chart IV.15).
V. Conclusion Global economic conditions remained fragile, shaped by heightened geopolitical tensions, elevated energy costs and persistent uncertainty surrounding the growth and inflation outlook. The conflict in West Asia continued to exert pressure on commodity markets, global trade flows and supply chains, contributing to the volatility in financial markets. India has entered this phase from a position of macro-economic strength. Domestic demand continues to be the key driver of growth. However, the near-term outlook is somewhat clouded by supply side pressures. Although headline inflation remains firmly within the tolerance band, the pass through to domestic prices needs to be monitored. The financial conditions, crude oil prices and capital flows continue to pose challenges to the external sector outlook. Nevertheless, robust services exports, positive net FDI flows, foreign exchange reserve buffers and a number of proactive policy measures undertaken by the Government and the Reserve Bank are likely to cushion the Indian economy against external headwinds.
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