New Delhi – The Ministry of Finance’s September Monthly Economic Review highlighted new near‑term risks to India’s price stability, noting that geopolitical tensions and elevated crude oil prices could add to imported inflation pressures. The warning comes as the country entered the second quarter of FY 2026/27 with solid domestic demand, robust export flows, healthy capital inflows and record foreign‑exchange reserves.

Key risks identified

The report points to three primary sources of potential inflationary pressure:

• Geopolitical tensions that could disrupt supply chains and raise commodity costs.
• High crude oil prices, especially after the U.S. Federal Reserve’s 25‑basis‑point rate hike in September, which may increase imported inflation.
• Tighter global financial conditions that could affect capital flows and the rupee.

These factors, the ministry warned, could also strain the rupee and capital‑flow dynamics in the short term.

Policy response

The Reserve Bank of India (RBI) has recently conducted open‑market operations to absorb surplus liquidity, a move the report says should help keep financial conditions balanced and curb “undue demand‑side overheating.”

Current inflation picture

Retail inflation rose to 4.82 % in August, with food prices climbing to 5.95 %. Wholesale inflation accelerated sharply to 9.92 %, driven in part by renewed fuel and power price pressures.

External sector resilience

Despite the risks, India’s external sector remains strong. Services exports, remittances, foreign‑exchange reserves and capital inflows continue to support the economy. As of 18 September, reserves stood at $765.9 billion, providing import cover for roughly 11.1 months.

Seasonal and climate concerns

The report also warned that a strong El Niño could damage winter crops, adding another layer of uncertainty to food‑price stability.

Outlook

While festive demand and higher input costs may add short‑term price pressures, the ministry emphasized that proactive government supply‑side measures and market interventions are designed to contain upside risks and cushion temporary shocks.

Overall, the government’s assessment underscores a balanced approach: acknowledging external vulnerabilities while highlighting the economy’s underlying strength and the policy tools being deployed to safeguard growth and price stability.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.