The Reserve Bank of India has warned that heightened geopolitical tensions and persistent global uncertainty could increase volatility across financial markets and pose risks to India’s economic outlook.
In its Annual Report 2025-26, the RBI said that global conflicts and policy uncertainty may affect commodity prices, capital flows and investor sentiment. The central bank noted that a prolonged escalation of tensions in West Asia could disrupt energy markets and global shipping routes, creating broader macroeconomic challenges.
The report said domestic bond yields could face upward pressure if the global monetary easing cycle stalls or reverses due to persistent oil price shocks. However, the RBI believes that the government’s commitment to fiscal consolidation, combined with liquidity measures from the central bank, should help contain excessive pressure on yields.
The central bank also cautioned that equity markets could witness volatility amid changing geopolitical conditions, global financial market fluctuations and foreign portfolio investment flows. Strengthening of the US dollar and a deterioration in global risk sentiment could lead to capital outflows from emerging markets, including India.
On the trade front, the RBI observed that geopolitical conflicts and policy uncertainty may weigh on merchandise exports. However, it added that India’s efforts to expand trade agreements, strengthen domestic manufacturing and reduce import dependence in strategic sectors could support long-term resilience.
The Reserve Bank of India has projected consumer price inflation at 4.6% for FY27, while cautioning that rising geopolitical tensions and volatility in global commodity markets could push prices higher than expected. The central bank said that it expects FY27 GDP growth at 6.9% but downside risks due to prolonged West Asia Conflict still linger.
The report also highlighted a robust outlook for India’s services exports, particularly software and business services, while inward remittances from Gulf nations are expected to continue supporting the country’s external balance.