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.
The RBI said the views expressed in the Bulletin article are of the authors and do not represent the views of the central bank.
