Shaktikanta Das, the esteemed governor of the Reserve Bank of India (RBI), recently addressed a significant gathering at the Peterson Institute of Economics (PIIE) amid the annual meetings of the International Monetary Fund (IMF) and World Bank, held in Washington, DC, on Friday, October 25, 2024.
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According to Das, central banks have successfully navigated a precarious economic landscape marked by “continual and unprecedented shocks,” creating what he termed a soft landing; however, he cautioned that the specter of rising global inflation and an impending slowdown in economic growth still looms large.
During a discourse in Mumbai on Thursday at CNBC-TV18’s Global Leadership Summit, Das remarked that the monetary policies employed by global central banks have demonstrated robust performance in recent years, even in the face of armed conflicts, escalating geopolitical tensions, and rampant volatility in financial markets.
He elaborated, stating, “A soft landing has been ensured, but risks of inflation — as I speak to you here today — risks of inflation coming back and growth slowing down do remain,” highlighting the gravity of the ongoing economic situation.
Das elaborated on the numerous headwinds threatening the global economy, including heightened geopolitical conflicts, increasing geoeconomic fragmentation, fluctuating commodity prices, and the pervasive impacts of climate change that continue to grow more pronounced.
Emphasizing his perspective, Das pointed to the paradoxes within global markets, such as the appreciation of the U.S. dollar, despite the Federal Reserve’s recent cuts to interest rates aimed at stimulating economic growth.
The U.S. dollar index, which evaluates the currency against six major counterparts, observed a 0.2% uptick, reaching 106.71 as of 8:45 a.m. London time on Thursday. This increase briefly marked its highest level since November of the previous year.
It comes as investors and economists scrutinize what President-elect Donald Trump’s impending return to the White House could signify for U.S. interest rates. The potential for higher trade tariffs and stricter immigration policies under a second Trump administration is expected to stoke inflation, possibly interrupting the Federal Reserve’s cycle of rate cuts in the long term.
The Federal Reserve recently executed its second consecutive interest rate cut earlier this month, aligning with market expectations, and traders believe there is a significant possibility of another reduction occurring in December.
Divergent themes in global markets
Das noted that “Government bond yields are rising even as many advanced economies have embarked upon an easing path through rate cuts,” illustrating how Treasury markets are swayed by a multitude of global and domestic influences that extend beyond mere policy adjustments.
He remarked, “Second, undeterred by the strong U.S. dollar and high bond yields, prices of gold and oil—the two commodities that typically move in tandem—are showing sharp divergence.” This observation underscores the complexities facing global commodity markets.
He highlighted a third noteworthy contrast: “an interesting contrast is also emerging between rising geopolitical risks and financial market volatility,” noting that while geopolitical tensions have intensified steadily over the years, financial markets have demonstrated remarkable resilience amid pervasive uncertainties.
Despite challenges—including tariffs, sanctions, and supply chain disruptions—Das noted that global trade is anticipated to remain elevated this year compared to 2023, signaling a complex interplay in international economic dynamics.
Shifting focus to India’s economic situation, Das indicated that the nation’s growth rate continues to exhibit resilience, forecasting that inflation will moderate, “despite periodic humps.” He asserted, “The Indian economy has sailed very well through the prolonged period of turbulence, and it exhibits resilience in the face of constantly emerging new challenges.”
A laborer loads consumer goods onto a supply cart at a wholesale market in Kolkata, India, on November 11, 2024.
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In a separate session at CNBC-TV18’s Global Leadership Summit, Piyush Goyal, India’s Union Minister of Commerce, urged the central bank to adopt a more accommodative monetary policy to bolster economic growth. When asked whether the RBI should implement interest rate cuts in the upcoming month, Goyal confidently asserted, “I certainly believe they should cut interest rates. Growth needs a further impetus. We are the fastest growing economy in the world [but] we can do even better.”
In October, the RBI maintained the key interest rate at 6.5% while shifting its policy stance to “neutral,” raising expectations that the central bank may be poised to lower borrowing costs soon. In response to inquiries regarding a potential rate adjustment in December, RBI’s Das refrained from making any definitive comments.
How might U.S. monetary policy shifts impact inflation and trade dynamics globally?
**Interview with Shaktikanta Das, Governor of the Reserve Bank of India**
**Editor:** Welcome, Governor Das. Thank you for joining us today. You recently spoke at the Peterson Institute of Economics during the IMF and World Bank meetings. Can you elaborate on the notion of a “soft landing” you mentioned in your address?
**Shaktikanta Das:** Thank you for having me. The concept of a “soft landing” refers to a careful balancing act that central banks have achieved amid a complex global economic landscape. We’ve managed to stabilize economies despite ongoing shocks like geopolitical tensions and market volatility. However, I must emphasize that while we have created this soft landing, challenges such as rising inflation and slowing growth are still significant concerns.
**Editor:** You pointed out several headwinds for the global economy, such as geopolitical conflicts and geoeconomic fragmentation. How do you see these factors influencing monetary policy worldwide?
**Shaktikanta Das:** These factors are becoming increasingly critical in shaping monetary policy. Geopolitical instability can drive markets in unpredictable directions, while geoeconomic fragmentation may result in more localized market responses. Central banks need to remain agile and responsive to these dynamic conditions to navigate through these risks effectively.
**Editor:** You also discussed the paradox of the U.S. dollar’s performance amidst the Federal Reserve’s rate cuts. Can you explain this phenomenon further?
**Shaktikanta Das:** Certainly. It’s interesting to see the U.S. dollar strengthen even when the Federal Reserve is cutting rates to stimulate growth. This can be attributed to various factors, including investor sentiment and capital flows, which can transcend policy decisions. Such complexities illustrate the intricate interplay between currency valuation and economic fundamentals.
**Editor:** You mentioned diverging trends in commodities like gold and oil, despite their historical correlation. What does this suggest for investors?
**Shaktikanta Das:** This divergence signals potential instability in commodity markets and highlights the importance of understanding underlying drivers. For instance, geopolitical risks may impact oil prices differently than gold, which is often viewed as a safe haven. Investors need to be vigilant and consider these complexities when making decisions.
**Editor:** With the impending return of President-elect Donald Trump, how might U.S. policies impact global economic conditions, particularly in terms of inflation and trade?
**Shaktikanta Das:** The outcomes of U.S. policies under a second Trump administration could indeed lead to higher tariffs and stricter immigration policies, which may contribute to inflationary pressures. Such changes can have ripple effects across global markets, necessitating careful monitoring by central banks around the world.
**Editor:** In your address, you echoed concerns about climate change’s impact on the economy. How do you view this challenge in the context of monetary policy?
**Shaktikanta Das:** Climate change is a pressing issue that cannot be ignored. It poses risks not only to economic stability but also affects resource availability and commodity prices. Central banks must incorporate climate-related risks into their policy frameworks to ensure long-term economic resilience.
**Editor:** Thank you for sharing your insights, Governor Das. It’s clear that the current economic landscape presents a myriad of challenges, and your leadership will be vital in navigating these waters.
**Shaktikanta Das:** Thank you for having me. It’s crucial that we remain vigilant and proactive in addressing these challenges as we move forward.
