RBI reiterates Indian economy remains resilient, but Iran war, deficient monsoon could pose risks to outlook; will there be rate change in August?

India’s central bank reiterated that the economy remains resilient, but the Iran war and a deficient monsoon could pose risks to the outlook, according to its monthly economic report.

“The domestic economy has navigated the external uncertainties well, underpinned by healthy demand conditions and resilient performance of the industrial and services sector,” the Reserve Bank of India said in its State of the Economy report for July. High-frequency indicators also suggested robust industrial performance and a resilient services sector, it said.

The RBI is widely expected to keep interest rates unchanged at its 5 August policy meeting, making it one of the few central banks in the region that has not changed policy in response to the Middle East conflict. Governor Sanjay Malhotra has indicated that the policy rate is likely to remain at 5.25%, unless price pressures become broader. The southwest monsoon, which accounts for about 70% of India’s annual rainfall, is vital for the $300 billion farm economy and has an outsized influence on food prices, rural demand and broader economic output. The Iran war adds another risk, with India importing more than 85% of its crude oil needs, raising the risk of imported inflation.

Silver imports

In another report, Bloomberg reports, silver imports into India have slowed sharply as a new licensing regime disrupted shipments, pushing local premiums to a multimonth high. Most banks have yet to secure the permits needed to import the white metal and remain awaiting government approval, according to people familiar with the matter, who asked not to be identified because they are not authorised to speak to the media. Only a handful have obtained licences, they said.

India is one of the world’s largest consumers of silver, with demand driven by jewellery, silverware, industrial use and purchases during festivals and weddings. With negligible domestic production, it depends almost entirely on overseas supplies brought in by banks and other authorised entities, making its buying a key driver in global silver supply and demand balance.

The country imposed licensing requirements for silver imports in May to preserve foreign-exchange reserves, sending shipments plunging to an estimated 29 tons in June from 747 tons in January, according to consultancy Metals Focus. The June total was estimated to be less than 1% of the country’s annual silver demand.

The resulting supply squeeze has pushed the estimated 30-day average premium — the extra amount buyers pay above benchmark prices — to the highest since at least 2019, when the firm started tracking the data, Harshal Barot, principal consultant at Metals Focus, said on Wednesday.

“With imports choked off, physical silver has become scarce just as demand holds steady,” Renisha Chainani, head of research at Mumbai-based gold trading firm Augmont Enterprises, said. The domestic premium is nearing “squeeze-like territory,” she added. The committee responsible for approving import licences meets only once or twice a month, contributing to the delays, according to a government official familiar with the matter, who asked not to be identified.

SBI’s tech fund

Meanwhile, SBI Funds Management is planning its first technology-focused fund for private firms, people familiar with the matter said, as India’s largest asset manager follows rivals in bulking up in the fast-growing alternative investment fund industry. The $200 million fund will be cosponsored with Bengaluru-based venture capital firm 3one4 Capital Management LLP, the people said, asking not to be identified because the information is private.

The two companies are awaiting regulatory approval from the Securities and Exchange Board of India before launching the fund. SBI Funds did not respond to an emailed request for comment.

The country’s $175 billion alternative investment fund industry has expanded rapidly in recent years, fuelled by demand from ultra-high-net-worth investors seeking higher-yielding assets. Several of SBI Funds’ peers such as ICICI Prudential Asset Management and Axis Asset Management have built sizeable alternatives businesses alongside their traditional mutual funds operations.