RBI Governor Shakktanta Das said there was a declining trend in global growth
Bombay:
Reserve Bank Governor Shaktikanta Das said on Friday that despite multiple shocks to the global economy from the pandemic, the Ukraine war and synchronized monetary tightening around the world, the domestic economy and financial sector are stable and the worst is inflation behind us.
He also said that despite the dollar’s massive appreciation, the rupee has shown the least volatility among its peers.
At the 17th commemorative lecture by KP Hormis (founder of the Federal Bank) tonight in Kochi, Das underscored that despite overwhelming concerns a few months ago about an impending global recession, the global economy has proved more resilient and has reduced the likelihood of a hard landing.
The governor said there is a declining trend in global growth. There is also significant uncertainty about structural shifts in the drivers of inflation, ranging from labor market dynamics to concentrations of market power and less efficient supply chains.
On the comfort side, however, food, energy and other commodity prices have softened from their respective highs and supply chains are normalizing, which should help disinflation and thus contain imported inflation, he added.
Referring to India’s role in managing the many emerging crises as it leads the G20 presidency, he said that global role comes to the country in an environment of tremendous geoeconomic shifts that have impacted the global macro-financial outlook.
The ability of the existing global economic order to cope with the severe impact of the numerous shocks is at stake, leading to severe supply-demand imbalances in critical sectors and high inflation in almost all countries.
One of these key challenges is fighting the globalization of inflation – which has risen to multi-decade highs amid subdued global growth. It has brought with it complex political challenges.
As the leading forum for promoting cooperative and effective solutions to global problems, the G20’s mission has been cut amid difficulties in consensus-building and uncertainty over the geopolitical outlook, he said, stressing that the ongoing global crisis is both an opportunity and a major test for the G20, which represent 85 percent of world GDP and 75 percent of world trade.
Citing the IMF, he said that with the war in Ukraine, geopolitics has now been taken over by geoeconomics and the global economy is therefore now experiencing a process of geoeconomic fragmentation, operating through five key channels of trade, technology, capital flows, labor mobility and global governance.
Of the multiple risks facing the global community, the rise in inflation has presented every economy with a complex monetary policy dilemma between raising interest rates enough to tame inflation while minimizing the sacrifice to growth to avoid a hard landing to avoid, he said.
On the impact of the dollar’s rise on countries with high external debts, he called on the G20 countries to support these countries in order to avoid another global crisis.
He also called on the groupings of the world’s 20 largest economies to ensure the more vulnerable nations receive adequate climate finance in a timely manner.
The aggressive and synchronized tightening of monetary policy by systemic central banks since early 2022 and the consequent appreciation of the dollar have left several economies with high levels of external debt very vulnerable to debt problems, he noted.
Citing IMF figures, he said an estimated 15 percent of low-income countries are already in a debt crisis, with another 45 percent at high risk of a debt crisis. About 25 percent of EM are also at high risk.
However, the governor said we need not worry on that front as our external debt is minimal compared to our balance sheets and the rate of economic growth.
The dollar’s appreciation has also prompted massive capital outflows, leading to reserve losses, sharp currency depreciation and spiraling imported inflationary pressures. In such a situation, addressing the deteriorating debt situation in low- and middle-income countries and facilitating coordinated debt treatment by official bilateral and private creditors in a multilateral framework must be a priority for the G20, he said.
In summary, Das said that our G20 presidency must focus on digital public infrastructure for financial inclusion, climate change and mitigation to achieve a more inclusive global economic order.
The G20 countries have a great responsibility to lead on global action on climate change and the provision of climate finance along with technology transfer to advance this agenda, he concluded.
(Except for the headline, this story was not edited by NDTV staff and was published by a syndicated feed.)