The worst inflation is behind us: RBI Chief

Bombay:

Reserve Bank Governor Shaktikanta Das said on Friday that despite the many shocks to the global economy from the pandemic, the war in Ukraine and the synchronized tightening of monetary policy around the world, the domestic economy and the financial sector are stable and the worst inflation is behind us.

He also said the rupee has shown the least volatility of its peer currencies, despite the greenback’s massive appreciation.

Das delivered the 17th memorial lecture of KP Hormis (Founder of the Federal Bank) in Kochi this evening, underlining that despite overwhelming concerns a few months ago about an imminent global recession, the global economy has shown more resilience, increasing the likelihood of a hard landing decreases.

The governor said there is a downward trend in global growth. There is also great uncertainty about structural shifts in the drivers of inflation, ranging from labor market dynamics to the concentration of market power and less efficient supply chains.

However, reassuring aspects are that global food, energy and other commodity prices have eased from respective peaks and supply chains are normalizing, which should help achieve disinflation and thus contain imported inflation, he added.

Speaking about India’s role in helping navigate the many emerging crises as it steers the G20 presidency, he said this global role comes to the country in an environment of formidable geoeconomic shifts, which have tarnished the global macro-financial outlook .

The existing global economic order’s ability to manage the severe impact of the many shocks is under strain, leading to severe supply and demand imbalances in critical sectors and giving rise to high inflation in almost all countries.

One of the main challenges is fighting the globalization of inflation, which has risen to multi-decade high levels amid subdued global growth. It has led to complex policy challenges.

As the main forum for advancing cooperative and effective solutions to global problems, the G20’s role is superfluous given the difficulties in reaching consensus and the uncertainty surrounding geopolitical prospects. He said and underlined that the ongoing global crisis is both an opportunity and a major test for the G20, which represents 85 percent of global GDP and 75 percent of world trade.

Quoting the IMF, he said with the war in Ukraine, geopolitics has now been taken over by geoeconomics and as a result the global economy is now experiencing a process of geoeconomic fragmentation, operating through five major channels of trade, technology and capital flows , labor mobility and global governance.

Of the many risks facing the global community, the rise in inflation in every economy has created a complex monetary policy dilemma between raising interest rates enough to contain inflation, while minimizing the growth sacrifice to avoid a hard landing. avoid, he said. .

Regarding the impact of the dollar’s appreciation on countries with high foreign debt, he called on the G20 countries to support those countries so that there is no chance of a new global crisis.

He also urged the groups of the world’s top 20 economies to ensure that the more vulnerable countries receive timely and adequate climate finance.

The aggressive and synchronized monetary policies tightened by systemic central banks since early 2022 and the ensuing appreciation of the dollar have left several economies, with a high share of external debt, highly vulnerable to indebtedness, he noted .

Citing IMF figures, he said, as many as 15 percent of low-income countries are estimated to be already indebted, and another 45 percent are at high risk of indebtedness. About 25 percent of EMs are also at high risk.

However, the governor said that we should not worry on this front as our external debt is minimal for our balances and economic growth.

The appreciation of the dollar has further led to a massive outflow of capital, resulting in reserve losses, sharp currency depreciations and increasing imported inflationary pressures. In such a situation, tackling the deteriorating debt situation in low- and middle-income countries and facilitating coordinated debt treatment by official bilateral and private creditors within a multilateral framework should be a priority for the G20, he said.

In summary, Das said our G20 presidency should 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 in providing leadership for global action on climate change and providing climate finance, along with technology transfers, to advance this agenda, he concluded.

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