India needs to keep constant vigil on external developments, says RBI governor

India needs to keep a constant vigil on ongoing geopolitical developments, even as some economic indicators remain favourable, Reserve Bank of India (RBI) governor Sanjay Malhotra said on Wednesday.

Malhotra said before the outbreak of the West Asia war, India's macroeconomic fundamentals exuded confidence with buoyant growth and low inflation. Conditions, however, turned adverse in March with the widening of the conflict zone and its intensification.

India’s external debt to GDP ratio increased to 20.4% at end-December 2025 from 19.8% at end-March 2025

Malhotra said global trade is expected to witness a slowdown during 2026 compared to 2025. “This is due to the lingering tariff-related uncertainties despite the (US) Supreme Court judgment, ongoing West Asia conflict, and elevated energy prices,” he said.

“India's merchandise exports contracted by 0.2% during the first two months of this year on a year-on-year basis. This was a result of export contraction in key markets.”

He said that the fundamentals of the Indian economy are on a stronger footing at the current juncture than in previous crisis episodes, and relative to many other economies, providing it with greater resilience to withstand shocks.

Malhotra said that while commodity prices, such as those of metal and gold, have moderated, financial markets have become more volatile, and equities registered a broad-based correction. Sovereign bond yields, already elevated due to long-run fiscal sustainability concerns driven by inflation fears, have hardened across major economies.

“The recent bilateral and regional trade agreements with major trading partners are expected to boost India's trade and investment opportunities while at the same time they will also widen and diversify India's trading partners and integrate India into global value chains,” he said.

The monetary policy committee said the intensity and duration of the war in West Asia, and the resultant damage to energy and other infrastructure, add to inflation and growth outlook risks.

According to the panel, while the economy is confronted with a supply shock, it is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook.

The RBI on Wednesday kept the repo rate steady at 5.25% and maintained its stance as ‘neutral’.

A Mint poll of 10 economists and market participants had pointed to rising inflation risks and a weakening growth outlook, with all expecting the MPC to hold rates while signalling a more cautious policy stance.