Mumbai: India’s central bank governor Shaktikanta Das Friday said that interest rates globally could remain elevated if the current geo-political tensions were to continue, although odds have lengthened on the likelihood of a hard-landing and subsequent recession in the US, which might instead escape with just a dent to its growth prospects.
The Reserve Bank of India (RBI), mandated with the task of maintaining the broadest price gauge within the 2 percentage-point tramlines of a 4% target, is not comfortable with sticky core inflation prints at 6%, Das said at a financial industry event in Mumbai.
“If the geo-political conflicts continue the way they are, if there are new flash points, it could be a situation of ‘high for long’ with regard to interest rates the world over,” Das said, adding that the RBI is keen on ensuring core inflation isn’t sticky at uncomfortable levels of 6%. But optimal supply chain management has brightened prospects for moderation in inflation globally, he said.
‘No Need to Revisit Inflation Band’
The cooling inflation has improved the economic outlook in the world’s advanced economies, according to the RBI governor.
“Six months ago, the expectations around global recession were grimmer than they are today. Everyone thought there would be a recession in the European Union,” said Das. “I am not ruling out that possibility, but it has improved considerably. It looked as if the US will face a recession, but it may also avoid that, facing (instead) a growth slowdown.”
Slowing inflation has prompted several economists to forecast an imminent end to the US Federal Reserve’s rate-tightening cycle, hauling Wall Street indices from 52-week lows. Lately, the technology-heavy Nasdaq, the stock gauge most battered by Fed’s liquidity drainage, has climbed about 8% from lows on expectations of a pause in the rate cycle by the summer.
Supply chain efficiencies should increase the likelihood of further moderation in global inflation.
“There could be a moderation in inflation numbers going forward. It also depends on the depth of the slowdown that countries are going to experience,” he said.
Global Supply Chain
Das also said that despite the geo-political tensions, several large economies had managed to streamline their supply chains.
“Notwithstanding the geo-political issues, every country, every system knows how to adjust to a new situation,” he said. “Global supply chains have considerably eased out. Countries are looking at new sources of supply. There is this whole talk of China plus one.”