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Strong fundamentals crucial amid global unrest: RBI Guv Shaktikanta Das
Source: Business Standard
Shaktikanta Das, RBI Governor | (Photo: Shutterstock)
Strengthening core fundamentals is the best defence against global uncertainties, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Tuesday amid heightened tension in West Asia.
Das said that a firm commitment to inflation targets, maintaining reserve buffers, and adopting prudent, forward-looking financial policies coupled with sound fiscal management will significantly enhance the resilience of emerging market economies (EMEs).
“The foremost lesson is that strengthening one’s fundamentals is the best buffer against global spillovers in today’s uncertain world. Fundamentals would include commitment to an inflation target, maintaining buffers in the form of reserves, and following a prudent and forward looking approach in financial sector policies. This approach, together with prudence in fiscal management, will go a long way in enhancing the resilience of EMEs,” the RBI governor said at Nepal Rastra Bank (NRB) in Kathmandu.
Das was invited in the neighbouring country to deliver the inaugural Himalaya Shumsher Memorial Lecture. Himalaya Shumsher Rana was the first governor of NRB.
Das said India’s flexible inflation targeting (FIT) framework established the primacy of price stability among the objectives of monetary policy, but not unconditionally, as the objective of growth also needs to be kept in mind.
“FIT provides flexibility to support growth if the situation so demands. Financial stability which is a pre-condition for price stability and sustained growth is thus implicitly embedded as part of the broader mandate of the Reserve Bank,” he said.
On the domestic front, the RBI has not only successfully shielded the Indian economy from multiple shocks in recent years but has also enabled it to emerge stronger from these crises.
He said that today, India’s economy showcases significantly improved macroeconomic fundamentals and buffers.
Unlike many central banks that focus primarily on price stability through monetary policy, the RBI has a broader mandate, Das said.
“The Indian economy today demonstrates vastly improved macroeconomic fundamentals and buffers. Unlike many central banks which are narrowly focused on price stability using monetary policy, the Reserve Bank has a wider canvas of functions. It is not just responsible for maintaining price stability, but also has the larger responsibility of maintaining financial stability as the regulator and supervisor of banks and other financial sector entities, financial markets and payment systems,” he said.
Das highlighted that severe climate and weather-related events, which are becoming increasingly frequent and intense, can affect central banks’ core mandates of price and financial stability by triggering sudden price pressures, damaging infrastructure, disrupting economic activity, and straining fiscal balances.
“These events can also impact the balance sheets of banks and other lenders. In recent years, regulatory policies have played a growing role in the climate policy toolkit. However, more progress is needed, with central banks positioned to complement the efforts of governments and other authorities leading climate-related initiatives,” the RBI governor said.
First Published: Sep 24 2024 | 3:42 PM IST
