Amid all these variables, emerging market economies have shown greater resilience than advanced economies, in the current phase of global turmoil, Shaktikanta Das said.
RBI Governor Shakikanta Das said the globe has gone through ‘unprecedented shocks’, distinct from the earlier era’s policies of interest rate moderation, and there is a risk of inflation coming back and growth slowing down in the global scenario. He was speaking at the CNBC-TV18 Global Leadership Summit on November 14.
Navigating through this turbulent period has been a “daunting challenge” for every country including India, Shakikanta Das added, as he listed out key divergences in the global context, playing out right now in the world economy.
1. Rising Bond Yields Amid Rate Cuts: Government bond yields have been rising, even as many advanced economies have embarked on an easing path through rate cuts. The trend implies that the market is signalling a scenario of economic uncertainty in the future, despite the rate cuts. Seven of the 10 major developed economy central banks have now started easing policy, as reported by Reuters in October 2024, with policymakers stressing on the need for data dependency.
The global central bank actions are underscoring the fact the treasuries are influenced by a host of global as well as domestic factors, which are beyond the control of policy adjustments, Governor said. Even the US Dollar is now rising, even though the Federal Reserve has started cutting rates, he added.
2. Sharp Divergence in Gold and Oil: Undeterred by a strong Dollar and high bond yields, prices of gold and oil, two commodities that typically move in tandem, are showing sharp divergences. Crude oil and gold prices largely move in tandem, although there are instances of disconnects, which makes this divergence very unusual. Higher oil prices push up the costs of transporting goods, when in turn drives up consumer prices, or inflation. Thus, gold becomes a tool to hedge against this inflation and a higher crude price frequently implies a rise in gold too. However, gold and oil prices have sharply diverged in the second half of 2024.
3. Rising Financial Markets Amid Global Tensions: RBI Governor also said that a contrast is on display between rising geopolitical tensions and financial market volatility. While geopolitical tensions have escalated steadily, Shaktikanta Das said financial markets have shown considerable resilience, even as uncertainties mount.
4. Despite Disruptions, Trade is On: RBI Governor also highlighted that the global trade will remain higher this financial year, irrespective of major economic sanctions, the looming threat of tariffs barriers, import duties restrictions as well as supply-chain disruptions.
5. EMs Resilient Amid Turmoil: Amid all these variables, emerging market economies have shown greater resilience than advanced economies, in the current phase of global turmoil.
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To counter these challenges, the world has seen ‘synchronous tightening’ in response to these shocks, Governor said. While these steps have ensured a global economic soft landing, but the risk of inflation is coming back, he added. Despite the concerns, Governor Shaktikanta Das said the Indian economy is sailing through smoothly.