Governor of the Reserve Bank of India Shaktikanta Das He said that the central bank cannot ignore India. inflation The target level of 4% is still to be reached.
on one Bretton Woods CommitteeSpeaking at an event in Singapore on Friday, Das said a slowing inflation pace could pose a threat to global recovery. He also expressed concern for global banks with large investments. Commercial real estate They could be targets of short sellers and hence investor confidence could be shaken, he added.
“Inflation has eased from its peak of 7.8% in April 2022 to within the tolerance band of 2% on either side of the 4% target, but we still have a distance to go and we cannot afford to look the other way,” Das said at the third annual conference of the Bretton Woods Committee’s Future of Finance Forum.
The Reserve Bank of India has released the retail inflation forecast for India. consumer price Index It will decline from 5.4% in 2023-24 to 4.5% in 2024-25 and to 4.1% in 2025-26. Meanwhile, India is working on fiscal consolidation and the country’s public debt level is on track to decline over the medium term.
On the global perspective, Das said global economic activity and trade have largely withstood downside risks, but the inflation end-run has proven challenging, raising financial stability risks. However, on the positive side, he said the probability of a hard landing has diminished.
“As market expectations about the future of monetary policies are re-aligning with central banks’ policy guidance, the odds of a hard landing appear to be receding. This is reflected in most forecasts, which suggest that near-term prospects are improving despite uncertainties in the international economic and financial environment,” Das said, according to a transcript of his speech posted on . reserve Bank of India Website.
On potential risks to global financial stability, Das emphasised on the issue of rising exposure of banks to commercial real estate, proliferation of non-banking institutions in financial intermediation and rising debt service burden and inflationary pressures for emerging economies due to a strong dollar. He said the stress in the global commercial real estate sector needs to be closely monitored.
“Banks exhibit higher sensitivity to expected and unexpected commercial real estate losses due to relatively high coverage ratios in their loan books. Further, banks with large CRE exposures may face liquidity constraints as short sellers may target them and investor confidence may be further eroded,” he added.
Indian banks have also been lending more to the commercial real estate sector lately, boosting confidence in the market. According to data from the central bank, commercial real estate Portfolio The total capitalisation of scheduled commercial banks rose 41% year-on-year to Rs 4.83 lakh crore at the end of June.
“As I said earlier, being cautious and taking timely regulatory measures can minimise the risks to banks’ balance sheets and systemic stability,” Das said, urging policymakers and financial sector regulators to be prompt in protecting economic activity and the financial sector from unexpected shocks.
The Governor said, “A flexible and well-equipped regulatory framework in the financial sector will be essential to stay on track and mitigate risks. Macroeconomic policymakers and other stakeholders must also be quick to adopt a forward-looking approach to navigate the twists and turns in the road ahead.”
