The Indian economy faces headwinds from global developments and the Omicron variant of Covid-19, the Reserve Bank of India Governor Shaktikanta Das said.

Inflation also continued to be a concern as it faced cost-push pressures.

In the foreword to the RBI’s financial stability report, Das noted that the growth outlook had progressively improved after the destructive second wave of Covid-19 in April-May. New challenges have emerged since then, the main being the Omicron threat to disruption of the economy.

A stronger and sustainable recovery hinges on the revival of private investment and shoring up private consumption, which unfortunately still remain below their pre-pandemic levels, the RBI Governor pointed out.

Das observed that stronger supply-side measures to contain food and energy prices are helping to moderate price risks.

The financial institutions have remained resilient amidst the pandemic and stability prevails in the financial markets cushioned by policy and regulatory support, Das said, as he expressed confidence that the strong balance sheets of banks with higher capital and liquidity buffers would help mitigate future shocks.

“While the pandemic induced bouts of volatility, spillovers and heightened uncertainty are challenging, the Indian financial system has stood up well and remains well prepared to meet the funding requirements of the economy,” Das said.