Trade agreements with EU and US to support export growth, says RBI Governor Sanjay Malhotra

"The recently concluded India-EU free trade agreement and the prospective India-USA trade deal, along with several other trade agreements, will support exports over the medium-term," the RBI Governor said on Friday.

Presenting the Monetary Policy Statement, Governor Malhotra noted that while services exports should remain resilient, the spillovers emanating from geopolitical tensions, volatility in international financial markets, and shifting trade patterns pose risks in the outlook.

"Taking all these factors into consideration, real GDP growth projections for Q1:2026-27 and Q2 are revised upwards to 6.9 per cent and 7.0 per cent, respectively," he said.

The Governor emphasised that the risks to these projections are evenly balanced. "I may mention that we are deferring the projections for the April policy as the new GDP series will be released later in the month," Malhotra said during his address. Despite political tension and elevated uncertainty, he asserted that "the Indian economy is in a good spot with strong growth and low inflation."

Despite heightened uncertainty, global trade remained relatively robust. The RBI Governor noted that India's merchandise exports, supported by trade diversification efforts, grew by 1.9 per cent YoY in Q3 of FY2025-26, whereas merchandise imports grew by 7.9 per cent YoY during the same period, resulting in a widening of the trade deficit.

The RBI also projected retail inflation for the current fiscal year (FY2025-26) at 2.1 per cent, even as it flagged potential "upside risks" from geopolitical tensions and volatile energy prices. Governor Malhotra noted that while headline CPI inflation remained low through November and December, it witnessed a slight hardening.

The central bank expects a shift in the inflation trajectory during the final quarter of the current fiscal year. While the annual average is pegged at 2.1 per cent, the projection for Q4 (January-March 2026) stands at 3.2 per cent.

Governor Malhotra explained that this rise is largely technical rather than a surge in current price momentum. "Unfavourable base effects stemming from large decline in prices observed during Q4 of last year, i.e., 2024-25, would lead to an uptick in year-on-year inflation in Q4 this year," the Governor stated.

Looking further ahead into the next financial year, the RBI projected inflation for Q1 at 4 per cent and Q2 at 4.2 per cent. (ANI)