Near-term economic outlook remains favourable: RBI Bulletin

The near-term outlook for the economy remains favorable and is well-positioned to sustain its high growth momentum, driven by consumption, investment, and productivity-enhancing reforms, Reserve Bank of India (RBI) officials said. This was part of the State of the Economy chapter in the February edition of the RBI Bulletin released on Friday (February 20, 2026). 

“Inflation is expected to remain benign and near the inflation target, providing a positive growth inflation balance in the near term,” officials emphasised. 

However, they said global economic outlook and financial market conditions were in a state of flux, being pulled by diverse signals, imparting some amount of volatility to market movements.

“While the simmering geopolitical tensions, public debt sustainability concerns in Advanced Economies (AEs), stretched valuation of AI firms and disruptions of AI on software services industry, are posing negative risk to outlook, robust macro- economic data releases including corporate earnings, on the other hand, have added to the positive sentiments,” they stated. 

Stating that the completion of the India-EU free trade negotiations in end-January and the subsequent interim trade agreement between India and U.S. would likely to play a significant role in the coming years by improving market access, enhancing export competitiveness, and integrating Indian firms more deeply into global value chains, they said, adding that it has led to a change in investor sentiments in the immediate term.

“Foreign portfolio investment into equity and debt segment staged a comeback in February. On the fiscal front, the continued commitment to fiscal consolidation and debt sustainability signals prudent macroeconomic management,” they pointed out. 

They added that the gradual reduction in the fiscal deficit, combined with a sustained emphasis on capital expenditure would crowd in private investment and improve productive capacity. “Support to states for capital investment is also likely to reinforce sub-national growth and infrastructure development.”