👍👍Worst over for global economy, ‘softer recession’ likely: RBI governor | Business Standard News

Clipped from: https://www.business-standard.com/article/economy-policy/worst-for-global-economy-behind-us-says-rbi-governor-shakitakanta-das-123012700897_1.html

There is a need to improve retail access to markets, particularly gilts and derivatives, he says

International growth is expected to contract significantly in 2023, but the worst for the global economy seems behind us, both from the perspective of growth and inflation, said Reserve Bank of India (RBI) governor Shakitakanta Das on Friday.

“On the growth front, projections are now veering around to a softer recession as against a severe and more widespread recession projected a few months back,” Das said at the 22nd FIMMDA-PDAI Annual Conference in Dubai.

According to the International Monetary Fund’s latest economic outlook, global growth is forecast to slow to 2.7 per cent in 2023 from 3.2 per cent in 2022. The RBI in December said that it expects India’s economy to grow at 6.8 per cent in the current financial year.

Although easing inflation in various countries has resulted in what appears to be a pivot towards lower rate hikes or pauses by central banks, Das noted that global monetary authorities persist in “emphatically” reiterating their resolve to bring inflation closer to targets.

Consequently, there is a distinct possibility of high policy rates persisting for a longer span of time, he said.

Das voiced optimism about the prospects of India’s economy, saying that within a hostile and uncertain international environment, the domestic economy remained resilient. He pointed towards a robust financial system and the fact that Indian banks and corporates were in better shape than they were in before the Covid-19 crisis.

While expressing comfort about the “welcome” decline in domestic inflation in November and December of 2022, Das warned that core inflation remained sticky and elevated.

India’s Consumer Price Index inflation fell to 5.72 per cent in December as against 5.88 per cent in November. The RBI’s target for CPI inflation is 4 per cent and its tolerance band is 2-6 per cent.

Core inflation, which strips out the volatile components of food and fuel, has been above 6 per cent since May 2022.

Turning to the functioning of financial markets, Das said that progress notwithstanding, some challenges remained. An issue flagged by the governor was the fact that secondary market liquidity in government bonds continue to be concentrated in only a few securities and tenors.

On the derivatives front, the governor pointed out that overnight indexed swap rates based on MIBOR (Mumbai Interbank Offered Rate) remained the only major liquid product. Furthermore, a term money market remains absent in India even though several policy measures have been taken to encourage the development of the same, Das said.

In the currency markets, while corporate players benefit from tight bid-ask spreads, smaller users still face pricing disadvantages even though regulatory requirements call for fair and transparent pricing, he said.

“Access of the retail segment to markets, especially derivative markets, needs to improve further…Likewise, there remains a need for improvement in ensuring liquidity for retail investors in the government securities markets,” he said.

The government securities market serves as the pricing benchmark for a vast variety of credit products in the economy including corporate debt. In 2021, the RBI launched the Retail Direct scheme to facilitate retail investment in government bonds. The scheme, however, has not yet evinced significant interest.

Das reiterated on Friday, that India’s current account deficit in 2022-23 (April-March) would be eminently manageable. Given global headwinds such as the US Federal Reserve’s aggressive monetary tightening and the sharp rise in commodity prices following the Ukraine war, India’s CAD is expected to rise to around 3-3.5 per cent of GDP in the current financial year from 1.2 per cent in the previous year.

The average current account deficit (CAD) was at 3.3 per cent in the first six months of the current financial year.

“The slowing global demand is weighing on merchandise exports; but our exports of services and remittances remain strong. The net balance under services and remittances remains in a large surplus, partly offsetting the trade deficit,” Das said.

With India’s external debt ratios remaining low by international standards, the RBI had been able to take steps to internationalise the rupee instead of opting for capital controls, even during episodes of large outflows, he said.