The Kautilya Economic Conclave 2023, a gathering of economic experts and policymakers, kicked off in Delhi with a thought-provoking inaugural session featuring Finance Minister Nirmala Sitharaman and Reserve Bank of India (RBI) Governor Shaktikanta Das.
In his address, Governor Das discussed the multifaceted challenges confronting the global economy, emphasizing the intricate balance required in policymaking amidst these complexities.
Highlighting the hurdles that have become increasingly prevalent on the global economic horizon, Das said, “The global economy is now facing a tirade of challenges. First, slow moderation in inflation, which is getting interrupted by recurring and overlapping shocks. Second, slowing growth, and that too is fresh and enhanced obstacles. And third, lurking risks of financial stability. Central banks with price stability as their primary objective have raised policy rates aggressively while signalling to keep the rates higher for longer”.
“Some of the central banks have taken a pause on rate hikes. Financial stability concerns have conditioned this pursuit. Financial markets have become highly sensitive to every piece of new information. Policymaking has become extraordinarily complex in the middle of such a confluence of factors”, Das added.
RBI Governor said, “With every shock such as the recent simultaneous surge of crude oil prices and the US dollar, additional dimensions of policy dilemma present themselves and hamstring the responses of the central banks. Conflict may arise between the requirements of price and financial stability, but policymakers have to trade a fine balance as it is important to recognize that price and financial stability reinforce each other in the medium to the long term.”
He outlined three primary challenges- the slow moderation in inflation disrupted by recurring shocks, slowing growth compounded by new obstacles, and the looming risks to financial stability.
Central banks worldwide, he noted, have responded with aggressive policy rate hikes while signalling intentions to maintain higher rates for an extended period.
Some central banks have even paused on rate hikes due to concerns about financial stability, complicating the already intricate landscape of policymaking.
Governor Das addressed the pressing concern of interest rates, remarking, “Interest rates will remain high, however long it will remain high, we don’t know.” His statement underscored the uncertainty clouding the duration of the high-interest rate regime, reflecting the cautious stance adopted by central banks globally in response to economic uncertainties.
