The head of the central bank of India stated the continued existence of risks of a return to global inflation, the potential materialization of which could become an obstacle to economic growth.
It is worth noting that recently financial regulators in many countries of the world have managed to form the conditions and circumstances for the implementation of the scenario of the so-called soft landing of the economy. However, the corresponding results, which are unequivocally positive, do not mean that the current economic situation no longer faces risks and all sorts of potential dangers of the dynamic in the direction of deterioration. Defeating inflation does not mean that it is impossible to resume rapid price growth.
Reserve Bank of India Governor Shaktikanta Das on Thursday, November 14, during a speech in Mumbai, said that the monetary policy of global financial regulators was generally successful. In this context, it was noted separately that central banks have achieved positive results against the background of unfavorable external circumstances, including the growth of geopolitical tensions and conflicts. Central banks also faced such a challenge as increased volatility.
Shaktikanta Das stated that the soft landing of the economy has been ensured, but at the same time noted that the risks of a return to inflation remain. In this case, it implies, among other things, a potential risk to the prospects for economic growth.
The head of the central bank of India also stated that the continuation of the increasing headwinds associated with conflicts in the space of geopolitical relations, geo-economic fragmentation, climate change, and commodity price volatility.
Besides, Shaktikanta Das drew attention to the contradictions in the global markets. In this case, it was mentioned appreciation of the US dollar, even as the Federal Reserve began cutting interest rates.
The US dollar index, which measures the currency against six top counterparts including the euro and yen, rose 0.2% on Thursday to reach 106.71. In this case, briefly observed the highest reading of the indicator since November last year. The corresponding tendency is fixing against the background of how investors and economists are trying to form a preliminary understanding of the impact that the return of Donald Trump, who won last week’s United States presidential election to the White House, may have on the dynamic of interest rates in the United States.
Currently, according to media reports, there is a widespread opinion among experts that an increase in trade tariffs on imported goods, primarily from China, and a tightening of migration policy may be the reasons for accelerating inflation. It is worth noting that the mentioned factors, which so far belong to the category of potential, can become facts of objective reality since Donald Trump has repeatedly stated his intention to implement the relevant plants. If it decides to increase tariffs and tighten migration policy, it is more likely that the central bank of the United States will face the need to suspend the process of consistently lowering the cost of borrowing in the long term. At the same time, it is worth noting that so far only assumptions about the potentially possible situation in the US economy are implied, and not accomplished facts.
In the current month, the central bank of the United States made another decision to cut interest rates. It is worth noting that this action by the US financial regulator meets preliminary expectations. Traders are also currently assessing as the high probability that the central bank of the United States will cut interest rates once again in December.
Shaktikanta Das stated that government bond yields are showing growth even at a time when many advanced economies have started lowering borrowing costs. According to him, this circumstance is evidence that Treasury markets are under the impact of many global and internal factors that go far beyond mere policy adjustments.
The head of the central bank of India also said that despite the strong US dollar and high bond yields, gold and oil prices show sharp divergence. He separately noted that the two mentioned commodities typically move in tandem.
Besides, Shaktikanta Das stated the contrast between the growing geopolitical risks and the volatility of the financial market. In this context, it was noted that against the background of the steady increase in geopolitical tensions in recent years, financial markets have demonstrated considerable resilience in the face of mounting uncertainty.
Moreover, Shaktikanta Das stated that, according to forecasts, the volume of global trade in 2024 will be higher compared to the figure recorded in 2023. He noted that a corresponding result is expected despite challenges posed by tariffs, sanctions, import duties, supply chain disruptions, and cross-border restrictions.
Commenting on the condition of India’s economic system, Shaktikanta Das stated that the growth rate in this country remains resilient. In his opinion, inflation will be moderate, despite periodic humps.
Shaktikanta Das also stated that the Indian economy has sailed very well through a long period of turbulence and demonstrates resilience against the background of constantly emerging new challenges.
It is worth noting that currently there are significant expectations among experts regarding the prospects of the Indian economic system. For example, the International Monetary Fund (IMF) predicts that the gross domestic product (GDP) of the South Asian country in the current year will show growth of 7%. The experts of this organization also expect that in 2025 the mentioned indicator will increase by 6.5%. It is worth noting separately that the corresponding growth rates are the highest among all economies in the world within the framework of IMF forecasts. A factor stimulating this dynamic may also be the fact that, against the background of deteriorating relations between the United States and China, many companies from Western countries are beginning to perceive India as an alternative manufacturing center in Asia.
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