Mumbai, May 29 (PTI) The country is poised to remain the fastest growing major economy in the world even in FY26, the Reserve Bank said on Thursday.

The benign inflation outlook and a "moderation" in GDP expansion warrant the monetary policy to be supportive of growth going forward, the RBI said in its annual report.

"...the Indian economy is poised to remain the fastest-growing major economy in 2025-26 by leveraging its sound macroeconomic fundamentals, robust financial sector and commitment towards sustainable growth," the RBI said in the latest report.

It flagged global financial market volatility, geopolitical tensions, trade fragmentation, supply-chain disruptions and climate-induced uncertainties as factors posing downside risks to the growth outlook and also upside risks to the inflation outlook.

However, factors like easing of supply-chain pressures, softening global commodity prices and higher agricultural production on above-normal south west monsoon augur well for inflation outlook, the central bank said.

Shifts in tariff policies may result in sporadic episodes of volatility in financial markets, it said, adding that exports may encounter headwinds on "inward-looking policies and tariff-wars".

The trade pacts being signed and negotiated by India will help ensure that the impact is limited, the RBI said, adding that services exports and inward remittances will help ensure that the current account deficit is "eminently manageable" in the new fiscal.

The RBI, which has already lowered key policy rates in two consecutive reviews, said in the annual report that there is now a "greater confidence" on durable alignment of headline inflation to the 4 per cent target over a 12-month horizon.

Considering the dynamic nature of the interest rate risk, banks need to address both trading and banking book risks, especially in light of moderation in net interest margins, it recommended. PTI AA HVA

Supportive monetary policy to sustain growth as central bank cites benign inflation and warns of global and supply chain risks. The central bank projects continued leading growth and endorses a supportive monetary policy stance as benign inflation and moderated GDP expansion warrant accommodative settings; it reports consecutive rate reductions and expresses confidence in durable alignment of headline inflation with the inflation target while warning of downside risks from global volatility, trade fragmentation, supply chain and climate disruptions and urging banks to manage interest rate risk amid softer net interest margins.