Indian Financial Market Resilience Reflects Robust Macro Fundamentals: Shaktikanta Das

RBI Governor Shaktikanta Das said that in the current turbulent global environment, the resilience exhibited by Indian financial markets reflects the strong macroeconomic fundamentals of the economy. He added that he too points to proactive and strategic policy interventions to mitigate the impact of the two black swan events that occurred in quick succession: the COVID-19 pandemic and the war in Europe.

Addressing an annual FIMMDA event titled ‘Financial Market Reforms: Focus and Expectations’ in Mumbai on Monday, Das said monetary policy will remain “watchful, agile and calibrated” to ensure price stability while supporting growth.

To control inflation, the RBI in early August raised the key repo rate by 50 basis points (bps). Since May this year, the Reserve Bank of India (RBI) has increased its repurchase rates by up to 140 basis points. Inflation has since cooled off but is still above the RBI’s upper tolerance limit.

“The RBI remains committed to supporting the market with two-way trading, as warranted, in line with the revised liquidity management framework. The RBI will also strive to ensure stable conditions in the money market, the smooth conduct of primary auctions in G-secs, and to facilitate the orderly evolution of the yield curve,” he added.

The RBI governor said it is useful to take stock of India’s macroeconomic fundamentals and buffers, and assess them under current and evolving conditions. First, India is widely perceived as one of the fastest growing major economies in the world in 20222, when the other major economies may experience a recession or considerable moderation in their growth momentum.

He also said: “India’s favorable growth differential gives investors confidence. This is largely reflected in the increase in portfolio flows to India since July 2022. In August alone, inflows of $7.5bn are more than 16 times the net inflows in July. Second, recent declines in commodity prices and supply chain pressures have eased the terms-of-trade shock India faced after the pandemic and war. With the consequent easing of imported inflationary pressures, India’s CPI inflation peaked in April 2022. In addition, the average price of crude oil in the Indian basket in August at USD 97.4 per barrel turned out to be lower than we had assumed for the full year: USD 105 per barrel – in the monetary policy resolution of August 5.”

Das added that India’s inflation is lower than that of a large number of its trading partners.

Retail inflation in India in July eased to 6.71 percent, compared with 7.01 percent in the previous month.

“The change in outlook for commodity prices is also altering the assessment of India’s current account deficit in 2022-23, which is now expected to remain within sustainable levels. At a time when food security is threatened around the world by shortages and rising prices, India’s large foodgrain reserve stocks supplement domestic supply and ensure national food security,” He said.

On the depreciation of the rupee, the RB governor said that while the US dollar has appreciated by 11.8 percent during the current fiscal year so far, the rupee has depreciated by 5.1 percent, which It is among the lowest in the world.

“Reflecting these fundamental factors, the Indian Rupee has moved in an orderly fashion in the current fiscal year thus far. It has held its own in a world of sharp depreciation in other EME and AE currencies… The RBI is in the market on a regular basis, providing liquidity and confidence to facilitate its normal and smooth operation,” he said.

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