Global headwinds persist as India posts 7.8% Q4 growth amid easing oil, steady policy stance and mixed inflation trends
Global Purchasing Managers? Index (PMI) witnessed widespread moderation across major economies in May yet still anticipated opening of the Strait of Hormuz and gradual restoration of supply chains crude oil prices have exhibited significant correction in June so far. Emerging market bond spreads and risk sentiment fluctuated, reflecting the uncertainties. Equity markets gained on the back of strong AI and technology sector and progress in the negotiations. Merchandise trade deficit largely remained unchanged in May 2026 over the previous month but widened year on year mainly on account of higher crude oil prices.
Consumer price index (CPI) inflation increased in May 2026 to 3.9% from 3.5% in previous month, driven by broad-based increases across food, fuel and core components. The Monetary Policy Committee in its bi-monthly review of June 2026, unanimously decided to keep the policy repo rate unchanged at 5.25% and retained a ?neutral? stance while waiting for more clarity on the West Asia conflict situation and the risks from a likely sub-normal south-west monsoon and El Ni?o event.
The provisional accounts of the Central Government for 2025-26 strengthened the credibility of Centre?s fiscal consolidation path, with the gross fiscal deficit (GFD) at 4.4 % of GDP. The deficit indicators of the states worsened modestly. Surplus liquidity in the banking system moderated in the second half of May and June so far, reflecting an increase in currency in circulation and elevated government cash balances. G-sec yields softened, supported by measures announced by the Government and the Reserve Bank to attract foreign capital. Corporate bond yields also eased, although the spreads generally widened.
The global macro-economic environment remained fragile. While the emerging economy equity markets faced a rise in volatility, advanced economies like the US and Europe reflected improved confidence and a fall in risk premia. The interim peace deal in West Asia eased concerns over energy supply disruptions. Business expectations varied across major advanced economies (AEs) and emerging markets and developing economies (EMDEs). Among major AEs, the composite PMI expanded in the US and Japan while it contracted in Euro area and the UK.
Despite sustained supply chain pressures, the World Bank Commodity Price Index softened in May due to decline in Brent crude oil prices from its highly elevated levels in April. Brent crude oil prices sharply corrected to below US$ 80 after the announcement of West Asia peace deal in the third week of June. The FAO food price index remained stable, as the increase in price of cereals and sugar was offset by declines in vegetable oils and dairy products.
The Bloomberg Commodity Index remained volatile in early May, before falling in the latter part of the month and early June. The correction was driven by moderation in prices of agricultural commodities, energy and precious metals. Gold prices extended their decline in June so far, as sustained selling pressure was reinforced by expectations of monetary policy tightening by the major central banks. The aluminium prices surged to its highest level since March 2022 in the first week of June but retreated subsequently.
Gasoline and jet fuel prices softened from their conflict peaks with interim peace deal. The urea prices corrected sharply back to pre-war levels due to easing of export restrictions in China and reduced demand from major importing countries at the end of the spring planting season. Liquified petroleum gas (LPG) prices also declined in June after a surge in mid-May amidst the improving US inventory levels.
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