Sovrenn Times: Macroeconomy Update | 14 August 2025
India’s July WPI Contracts to -0.58%, Retail Inflation Hits 8-Year Low at 1.55%
India’s wholesale inflation slipped to -0.58% in July from -0.13% in June, marking the longest disinflation streak in over a decade. This was below economists’ forecast of -0.30%, aided by a strong spring harvest that offset uneven monsoon effects on food prices. Retail inflation also plunged to 1.55% in July the lowest since June 2017 and the first reading in over six years below the RBI’s 2–6% comfort band. The RBI now projects FY26 headline inflation at 3.1% (down from 3.7% earlier) with quarterly estimates of 2.1% (Q2), 3.1% (Q3), and 4.4% (Q4). CPI is expected to climb to 4.9% in Q1 FY27, above the central bank’s 4% target, as volatile food prices, especially for vegetables, may push inflation higher. Core inflation remains steady at 4%, with the RBI calling risks to the outlook “evenly balanced.”
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RBI Steps Up Forex Market Interventions; $9.3 Bn Reserve Dip Signals $5–6 Bn NDF Sales
India’s forex reserves fell by $9.3 Bn to $688 Bn as of August 1 — the sharpest drop in eight months reflecting the Reserve Bank of India’s (RBI) likely intervention to curb rupee volatility. Treasury officials estimate the central bank sold $5–6 Bn in the offshore non-deliverable forwards (NDF) market over the past fortnight, with notable trades around 9 AM ahead of Mumbai’s market open. The rupee, which has weakened 2.4% YTD to 87.71/$1, nearly touched its all-time low before these actions, aimed at limiting imported inflation risks. This marks a shift after minimal interventions since December 2024, as the RBI also sold dollars in the onshore spot market. Experts anticipate another week of reserve declines and a rise in short forward positions for August.
RBI Panel Charts 26-Point AI Roadmap for Financial Sector
The Reserve Bank of India’s (RBI) AI committee has issued a framework urging regulated entities to adopt board-approved AI policies and calling on regulators to foster AI innovations that advance financial inclusion, especially for underserved communities. The eight-member panel, chaired by IIT Bombay’s Pushpak Bhattacharyya, proposed 26 actionable recommendations under six strategic pillars, guided by seven “Sutras” trust, people-first, innovation, fairness, accountability, understandable design, and safety. Key proposals include a consolidated RBI AI guidance document, a permanent multi-stakeholder AI standing committee, and AI-specific provisions in product approvals, consumer protection, and audits. Formed following the RBI’s December 2024 policy announcement, the panel aims to strike a balance between innovation and risk mitigation in the financial ecosystem.
FX Reserves Likely Rose $4B in Week to Aug 8 on $9.8B Revaluation Boost
India’s foreign exchange reserves are estimated to have increased by over $4 billion in the week to August 8, despite a $5 billion dollar/rupee swap maturity and RBI interventions to defend the rupee from breaching its 87.95/$ all-time low after fresh US tariffs. According to IDFC First Bank’s Gaura Sen Gupta, a $9.8 billion revaluation gain from higher gold prices and a weaker dollar offset the reserves drain from interventions. The RBI’s net dollar sales totaled $5.6 billion that week largely from the swap maturity — with limited spot market activity, indicating heavier reliance on offshore non-deliverable forward (NDF) operations. Official figures will be released on Friday.
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India Moves Towards Service Sector Index on Lines of IIP
The Ministry of Statistics and Programme Implementation (MoSPI) has initiated steps to create an Index of Service Production (ISP), modelled on the Index of Industrial Production (IIP), using data from the Annual Survey of Services Sector Enterprises (ASSSE). At a brainstorming session chaired by MoSPI Secretary Dr Saurabh Garg, officials, economists, and industry bodies discussed sectoral coverage, sampling frameworks, and findings from a recent pilot study. The services sector, a key driver of value addition, FDI, exports, and employment, will be mapped more accurately through this index. The ASSSE will leverage GSTN data and align with global best practices, while a forthcoming Statistical Business Register (SBR) will provide granular district- and state-level business data for sentiment surveys and policy planning.