Mumbai: The financial conditions, crude oil prices, and capital flows continue to pose challenges to the external sector outlook amid the West Asia conflict, Reserve Bank of India (RBI) Bulletin said on Friday.
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The global economy continued to be shadowed by uncertainties in West Asia, said an article on the state of the economy published in the May Bulletin.
Domestic economic activity exhibited resilience in April, with industrial and services sectors maintaining strength across several segments, it said.
In agriculture, summer sowing progressed well, supported by above normal pre-monsoon rainfall and comfortable reservoir levels, the article said, adding that CPI inflation rose to 3.5 percent in April, driven mainly by food inflation, while core inflation remained steady.
It noted that 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 macroeconomic strength. Domestic demand continues to be the key driver of growth.
"However, the near-term outlook is somewhat clouded by supply side pressures," the article said.
It further said 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," it said.
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, the article said.
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The RBI, however, said views expressed in the Bulletin are those of the authors and do not represent the views of the central bank.
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