The recent developments around Brexit have repercussions on India’s external sector and the Reserve Bank of India will carefully weigh the challenges and opportunities that lie ahead and undertake appropriate policy responses, according to Governor Shaktikanta Das.
“As a few advanced economies are on the path of monetary policy normalisation, there has been global portfolio rebalancing away from EMEs (emerging market economies), including India.
“Another factor that has repercussions for India’s external sector is the recent developments around Brexit. There are consequential policy challenges for India which enjoys strong trade and investment relations with UK and the EU,” said Das in a speech at the 9th Vibrant Gujarat Global Summit.
The Governor underscored that Indian companies may face challenges arising from developments around Brexit. Indian companies and policy makers need to suitably weigh all opportunities and challenges, and accordingly re-strategise to respond appropriately, he added.
“While positive policy settings and continued macroeconomic stability helped contain India’s external vulnerabilities, a close monitoring of external sector is required, given the sharp movements in global crude oil prices and global financial market volatility.
“These are the two global shocks that have implications for our CAD (current account deficit) and financial flows,” explained Das.
The Governor emphasised that wide divergences (between retail inflation including food and fuel and retail inflation excluding food and fuel) and large volatilities in inflation across major groups pose challenges for inflation assessment. This probably is a hint that the RBI may wait for more clarity on inflation data before taking a call on interest rates.
“While food inflation has turned negative since October 2018 and fuel inflation has been highly volatile, inflation excluding food and fuel remains sticky at close to 6 per cent. “Balancing the objectives of inflation and growth under a flexible inflation targeting framework would warrant careful analysis of every new data,” he said. According to the monetary policy committee, the benign outlook for headline inflation is driven mainly by the unexpected softening of food inflation and collapse in oil prices in a relatively short period of time. However, excluding food items, inflation has remained sticky and elevated.
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