RBI governorShaktikanta Das sounded a cautionary note for theglobal economy , underlining thatglobalized inflation could unravel it.- The pandemic had already put immense stress on global supply chains, and now the Russia-Ukraine war has further worsened this situation, Das implied.
- RBI made the statement while announcing the third repo rate hike since May, taking the total to 140 basis points.
“Successive shocks to the global economy are today taking their toll in terms of globalized inflationary surges, tightening of financial conditions, sharp appreciation of the US dollar and lower growth across geographies,” Das said, while $4, in line with analyst expectations.
“50 bps rate hike has become the new normal,” Das quipped, alluding to the rate hikes by the US Fed, Bank of England, European Central Bank and RBI itself. According to him, 75-100 basis points hikes might soon be what 50 basis point hikes once were.
This is the third rate hike by the RBI, in lockstep with the US Fed, showing $4.
“Emerging market economies are facing a rapid tightening of external financial conditions, capital outflows, currency depreciations and reserve losses simultaneously. Some of them are also facing mounting burdens of debt and default. Elevated food and energy prices and shortages are rendering their populations vulnerable to insecurity of livelihood,” Das said.
Here's what Das is talking about – since the beginning of 2022, $4 from the Indian markets, the $4 and the $4 from a freefall, with another $40 billion set aside.
“Multilateral institutions, including the
Das dismissed concerns about Taiwan, saying it is premature to call it a black swan event. “Our trade with Taiwan is miniscule at 0.7% of the total trade. The impact on India would be very, very negligible,” he said.
On a slightly more optimistic note, Das said that he expects the current account deficit to remain within sustainable limits, without giving any specifics. He underlined three factors – GDP growth projections, improved exports and a decline in external debt – as positives for the Indian economy in 2022-23.
Going by what Das said, it is quite likely that the RBI could announce a fourth rate hike of 35-50 bps, with the repo rate inching closer to 6% by the end of 2022.
Here are a few other takeaways from the press conference:
- We can’t assess the current account deficit for FY23 as a whole on the basis of one month’s merchandise trade data.
- Current account deficit will be manageable, RBI has the ability to manage the gap.
- So far as current inflation is concerned, I don’t think demand is a factor. It’s primarily due to supply issues and imported inflation. Our monetary policy actions have not fueled domestic inflation.
- There is a small decline in exports due to a decline in exports of petroleum products.
- Inflation has peaked and will moderate, but is at unacceptably high levels.
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