Persistent conflict in West Asia and supply chain disruptions could pose challenges to the domestic economy in the form of higher energy costs, input cost pressures, disruption in trade flows and financial market spillovers, an RBI bulletin said on Thursday.
The conflict in West Asia has intensified pressures on the global supply chains in March with some easing observed in the first half of April, said an article on “State of the Economy” published in the Reserve Bank's April bulletin.
Domestic economic activity displayed resilience in many segments, with a slowdown in a few others, it said. The intensity and duration of the conflict, as well as the resultant damage to energy and other infrastructure, add risk to the inflation and growth outlook, it added.
“If the conflict persists and supply chains are not restored early, it may create challenges to the domestic economy in the form of higher energy costs, input cost pressures, disruption in trade flows and financial market spillovers,” the article said.
Though inflation remains within the tolerance band, upside risks have increased, driven by supply-side disruptions, including weather-related uncertainties, it pointed out.
“Possible second-round effects with the supply shock transforming itself into a demand shock also warrant careful and continuous assessment. The temporary two-week ceasefire between the US and Iran has, however, provided some breather to the global economy,” it said.
The strong macroeconomic fundamentals should support the Indian economy to maintain its resilience to withstand such shocks, according to the article.
RBI purchased $7.4 billion in spot market in Feb
The RBI net purchased USD 7.409 billion from the spot currency market in February, according to the central bank’s monthly bulletin released on Thursday. On a gross basis, the central bank purchased USD 21.403 billion in February and sold USD 13.994 billion, as per the bulletin.
This is the second consecutive month of net purchase of foreign currency by the central bank after registering net sales for seven consecutive months before that. In January, the central bank bought USD 2.526 billion, according to the RBI's monthly bulletin data.
Data further showed that the central bank net sold USD 10.02 billion in December, USD 9.710 billion in November, USD 11.877 billion in October, USD 7.910 billion in September, USD 7.695 billion in August, USD 2.540 billion in July, and USD 3.661 billion in June.
The rupee appreciated from early February 2026 on the announcement of the interim India-US trade deal agreement, but depreciated in March as the conflict in West Asia intensified. While implied option volatility, on average, moderated in H2 compared to H1, it remained high in the face of ongoing risk-off sentiments and rising geopolitical tensions in West Asia, RBI said in the bulletin.
To ensure orderly conditions in the foreign exchange market, the central bank introduced a prudential measure on March 27, 2026, that limited the net open position in INR (NOP-INR) of authorised dealers in the onshore deliverable market to within USD 100 million at the end of each business day. The move was aimed at curbing excessive speculative positioning and mitigating systemic risks, the central bank added.
Overall, the rupee depreciated by 6.2 per cent against the US dollar in H2 FY26. In terms of the 40-currency real effective exchange rate (REER), the rupee depreciated by 3.3 per cent between September 2025 and February 2026, driven by depreciation of the currency in nominal effective terms, the RBI said.
Also read: RBI ups crude oil, exchange rate baseline assumptions for FY27
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