Amid global headwinds and contradictions, the Indian economy is sailing through smoothly, powered by buffers like strong macro-economic fundamentals, stable financial system and resilient external sector, even as the monetary policy has completed a full cycle in the last six years, said RBI Governor Shaktikanta Das.
“Today, India’s economic growth remains resilient; inflation is expected to moderate despite periodic humps; and the external sector is robust.
“Without being complacent….the Indian economy has sailed well through the prolonged period of turbulence and exhibits resilience in the face of constantly emerging new challenges,” Das said in his keynote address at the CNBCTV18 Global Leadership Summit.
Headwinds & Contradictions
The Governor observed that the headwinds from geopolitical conflicts, geo economic fragmentation, commodity price volatility and climate change continue to blow.
Highlight certain contradictions globally which RBI is observing at the current juncture, Das said: “First, government bond yields are rising even as many advanced economies have embarked on an easing path through rate cuts, underscoring the fact that treasury markets are influenced by a host of global and domestic factors that are much beyond mere policy adjustments. Incidentally, even the US dollar is appreciating although the Fed is cutting rates.”
Second, undeterred by the strong US dollar and higher bond yields, prices of gold and oil – the two commodities that typically move in tandem – are showing sharp divergence.
Third, an interesting contrast is also emerging between rising geopolitical risks and financial market volatility. “While geopolitical tensions have escalated steadily in recent years, financial markets have shown considerable resilience in the face of mounting uncertainties,” Das said.
Fourth, global trade is projected to remain higher than the previous year notwithstanding the sanctions, tariffs, import duties, rising cross-border restrictions and supply chain disruptions Fifth, the emerging market economies (EMEs) have shown greater resilience than advanced economies (AEs) in the current phase, the Governor said.
Das emphasised that “Our endeavour has been to seize every opportunity to further strengthen our fundamentals through prudent and proactive policy approach. Our prime focus has been to maintain financial stability, which breeds growth and prosperity.”
Monetary policy
The Governor noted that the monetary policy has completed a full cycle in the last six years – an easing cycle during 2019-22 and a tightening cycle of equal magnitude thereafter.
“We have used the flexibility embedded in flexible inflation targeting (FIT) to prioritise growth or inflation depending upon the prevailing conditions and the outlook,” he said.
Financial system: newer challenges
Das said looking ahead, the financial system will continue to face newer challenges. There is a continuing need for the financial sector entities to strengthen their levels and quality of capital, while further sharpening the risk management standards.
“The Reserve Bank is now working on issues like adoption of revised Basel III standards in a phased manner; issuance of guidelines for Expected Credit Loss (ECL); liquidity coverage ratio (LCR); and prudential framework for financing of project loans. Our overall approach is consultative.
“Our endeavour is to maintain a balance between banking sector stability and economic growth, both of which are necessary and are complementary to each other. We are also working on climate risks and their impact on the financial sector. The final guidelines for Disclosure Framework on Climate related Financial Risks will be issued shortly,” the Governor said.
Das noted that overall, the financial sector in India is now more robust and resilient than at the beginning of the recent period of turmoil.
“There is, however, no room for complacency. The Regulator and the Regulated Entities must remain alert and future ready for the emerging challenges,” he said.