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Synchronized rate hikes could trigger recession: RBI Governor Shaktikanta Das


MUMBAI: Governor of the Reserve Bank of India Shaktikanta Das warned that a coordinated interest rate tightening by advanced economies could lead to a ‘hard landing’ in the form of a recession for economies. However, he said India has a different position.
The governor’s statement comes at a time when the UK prime minister Jeremy Hunt admitted that the country was in decline. In the US, corporations are on the verge of mass layoffs due to fears of an economic downturn. The European Central Bank also said that a recession in the 19 countries that use the euro is more likely.
Das said that since March 2020, the world has suffered three shocks. Pandemic, war in Europe and aggressive monetary policy of countries. “When inflation in advanced economies with a major role in the system turned out to be persistent rather than transient, the third shock resulted from a drastic tightening of monetary policy by the government. US Federal Reserveand then the relentless appreciation of the US dollar,” he said.
“The tightening of global monetary policy is gradually increasing the risk of a hard landing, or recession, to tame inflation. However, India is in a different position,” said Das. A recession is characterized by a contraction of the economy. In India, the RBI has forecast 7% growth for the Indian economy in the current financial year.
For emerging markets, central bank actions bring old issues to the fore, such as assessing the sustainability of the external sector, the range of possible policy options to maintain sustainability and analyze their effectiveness.
The Governor was speaking in Hyderabad at the RBI at the Department of Economic and Policy Research Annual Research Conference on Saturday.
In his speech, Das said that before the pandemic, global growth momentum was fading and the country was seeing a slowdown in growth.
“The key challenge is understanding the reasons behind the observed growth slowdown and recommending structural reforms and other policy changes. On the other hand, domestic inflation has slowed to an average of 3.9% in the flexible inflation targeting regime,” said Das. At the same time, globally, widespread dissatisfaction with the negative spillover effects of globalization has led to a growing shift towards protectionist policies, challenging the prevailing view of more openness. to maximize economic welfare.

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