MUMBAI: Reserve Bank of India (RBI) Governor Shaktikanta Das said inflation has started to moderate and the current account deficit is “very manageable” and within feasible parameters. According to Das, the global economy is expected to contract significantly in 2023, but a longer period of high policy rates is likely as the recession is expected to slow.
Speaking at the 22nd FIMMDA-PDAI Annual Conference in Dubai, Das said that while inflation remains elevated, there has been welcome weakness during November and December 2022. However, core inflation remains sticky and elevated.
“Central banks have begun to shift towards lower or paused rate hikes. At the same time, they continue to emphasize their determination to bring inflation closer to target. Going forward, a longer period of high policy rates seems a clear possibility,” Da S said.
The governor noted that historically, whenever global investors turn to risk aversion, the rupee has come under pressure. Witness this during the global financial crisis and the tapering tantrum. However, the rupee has fared better during the pandemic.
“During the first few days of the pandemic, from February 17, 2020 to April 21, 2020, the rupee depreciated by only 7%. Down 9% between Feb. 24 and Oct. 19, 2022, it still outperformed most developed and many emerging market economies’ currencies,” he said.
On the current account deficit, Das said that while slowing global demand is affecting India’s merchandise exports, services exports and remittances remain strong. “The net balance under services and remittances still has a large surplus, partially offsetting the trade deficit. So the current account deficit is very manageable and within the realm of viability,” he said.
The governor said India was building bilateral ties with trading partners to compensate for the deglobalization and protectionism that had progressed, as seen in the recent shock to global supply chains.
“India’s external debt ratio is very low by international standards. This has allowed the Reserve Bank to sidestep measures to control capital flows and take steps to further internationalize the country’s currency,” Das said.
While financial markets have undergone major reforms over the past decade, there is still room for improvement, he said. “Secondary market liquidity in G-secs is concentrated in a small number of securities and maturities. MIBOR-based overnight interest swaps (OIS) remain the only major liquidity product in the interest rate derivatives market. Despite a series of facilitating policy measures, But the term money market still doesn’t exist,” Das said.
He added that there is a need to improve the retail sector’s access to markets, especially the derivatives market. “In the foreign exchange market, while corporates benefit from tight bid-ask spreads, smaller users continue to face a pricing disadvantage despite regulatory mandates for fair and transparent pricing. Likewise, there remains a need to ensure liquidity for retail investors in government securities markets improvement,” Das said.
Speaking at the 22nd FIMMDA-PDAI Annual Conference in Dubai, Das said that while inflation remains elevated, there has been welcome weakness during November and December 2022. However, core inflation remains sticky and elevated.
“Central banks have begun to shift towards lower or paused rate hikes. At the same time, they continue to emphasize their determination to bring inflation closer to target. Going forward, a longer period of high policy rates seems a clear possibility,” Da S said.
The governor noted that historically, whenever global investors turn to risk aversion, the rupee has come under pressure. Witness this during the global financial crisis and the tapering tantrum. However, the rupee has fared better during the pandemic.
“During the first few days of the pandemic, from February 17, 2020 to April 21, 2020, the rupee depreciated by only 7%. Down 9% between Feb. 24 and Oct. 19, 2022, it still outperformed most developed and many emerging market economies’ currencies,” he said.
On the current account deficit, Das said that while slowing global demand is affecting India’s merchandise exports, services exports and remittances remain strong. “The net balance under services and remittances still has a large surplus, partially offsetting the trade deficit. So the current account deficit is very manageable and within the realm of viability,” he said.
The governor said India was building bilateral ties with trading partners to compensate for the deglobalization and protectionism that had progressed, as seen in the recent shock to global supply chains.
“India’s external debt ratio is very low by international standards. This has allowed the Reserve Bank to sidestep measures to control capital flows and take steps to further internationalize the country’s currency,” Das said.
While financial markets have undergone major reforms over the past decade, there is still room for improvement, he said. “Secondary market liquidity in G-secs is concentrated in a small number of securities and maturities. MIBOR-based overnight interest swaps (OIS) remain the only major liquidity product in the interest rate derivatives market. Despite a series of facilitating policy measures, But the term money market still doesn’t exist,” Das said.
He added that there is a need to improve the retail sector’s access to markets, especially the derivatives market. “In the foreign exchange market, while corporates benefit from tight bid-ask spreads, smaller users continue to face a pricing disadvantage despite regulatory mandates for fair and transparent pricing. Likewise, there remains a need to ensure liquidity for retail investors in government securities markets improvement,” Das said.
