Indian economy is on solid footing. Fundamentals are strong. Inflation is here to stay for some more time, said Shri Radha Shyam Ratho, Executive Director, RBI
Merchants’ Chamber of Commerce & Industry organized a Special Session with Shri Radha Shyam Ratho, Executive Director, Reserve Bank of India today at the Chamber.
The Session discussed The Recent Trends in Global Economy and its Likely Impact on the Indian Financial Market.
Shri Rishabh C. Kothari, President, MCCI presenting a memento to Shri Radha Shyam Ratho, Executive Director, Reserve Bank of India. On his right -Shri Sanjay Rasiwasia, Chairman, Council on Banking & Finance, MCCI at the Special Session on ‘Recent Trends in global economy and likely impact on Indian financial markets’ held today at MCCI.
While welcoming the Guest, Shri Rishabh C. Kothari, President, MCCI said that the repo rate hike by a further 50 basis points to 4.9% has been on expected lines. This was the second rate hike in the last two months with the earlier one being on May 22, when the Monetary Policy Committee in an unscheduled meeting hiked the repo rate by 40 basis points. He enquired how far the hike in repo rates will result in a check on inflation and what has been the impact of the May repo rate revision on inflationary pressures?
Shri Radha Shyam Ratho, Executive Director, Reserve Bank of India in his address said that hope of recovery from COVID was dashed by Russia-Ukraine War and high Inflation. Growth estimates for world economy reduced from 6.1% to 3.6% in Fiscal Year 2022-23.
Shri Ratho said Russia-Ukraine War has affected the world economy as Russia is a key supplier of many food commodities, metals and minerals. Consequently there is an inflationary spiral due to the War. Earlier, experts thought that inflation was transient. Now it has become persistent. It has been forecasted that global inflation will be 6.2%. There are multiyear inflation highs in many nations. Inflation is led by surging commodity prices. In fact crude oil prices are up about 50% between January to May 2022.
In the context of Indian economy, he further added that CPI has increased to 7.79% in April 2022. RBI is now focusing more on inflation and less on growth. So earlier it raised the Repo rate by 40 bps and CRR by 50 bps and in June it has raised Repo rate by another 50 bps to 4.9%. He assured that inflation is not a source of great worry in India as its inflation is 7.5% whereas the target is 6%. In comparison the inflation in USA is 8% whereas target is 2%. So India is in a better situation than USA.
While speaking on FOREX, Shri Ratho said that disorderly movement of exchange rate can impede stability. It does not have a level for rupee in mind, it tries to remove the volatility. Other Asian currencies have depreciated more than the Indian rupee. India’s external sector is sound with reserves greater than debt.
He mentioned that the era of hyper-globalization has come to an end. Countries will focus on self reliance or Atmanirbhar in current situation. However, nations will emphasize on trade and supply chain. While globalization is not dead, we now live in multipolar world where the countries are forming their own blocks. For example China has influence in countries that it has helped.
While describing current Indian economic scenario, Shri Ratho stated that India is the fastest growing country in G20. At the same interest rate will increase in India. However there are positive factors such as recent trade agreements and PLI scheme which would reduce imports in critical areas. He further suggested to the audience that we should be optimistic that the future will be better and not think too rationally.
Source: MCCI Release
