Against a challenging global backdrop of slow and divergent growth prospects, elevated debt levels, growing geo-economic fragmentation and prolonging conflicts, the Reserve Bank of India has signalled its intent to remain alert and act early and decisively to prevent any build-up of risks. Flagging risks to financial stability and resilience of the Indian financial system in the Financial Stability Report released by the Central Bank on Thursday, Governor Shaktikanta Das indicated that the RBI would tread a prudent path and proceed with caution on the evolving outlook and risks even as the Indian economy exhibits macroeconomic resilience, with a robust financial system that is supporting its growth dynamics, pushing India to the position of one of the fastest growing major economies in the world.
Outlining the reasons for this optimism, Das highlights the sound macroeconomic fundamentals, robust domestic demand and prudent public policies. Achieving durable price stability, ensuring medium-term debt sustainability, further strengthening financial sector resilience, creating new growth opportunities and promoting inclusive and green growth remain key policy priorities, emphasises the RBI Governor. While inflation has been moderating, hopes of a soft landing of the global economy is taking hold and global interest rates have peaked in the current monetary policy tightening cycle, Das notes.
The downsides are also tangible, Das observes, as high interest rates, large fiscal deficits have added to debt servicing pressures in most countries, growth prospects remain subdued and policymakers face a daunting task in balancing the pressing requirements of investment in critical public infrastructure, especially those relating to health and education as well as supporting the most vulnerable sections of society. In effect, macroeconomic conditions remain too fragile and uncertain for a definite view on growth and inflation conditions going forward, providing solid ground for the RBI to remain vigilant.
“Our recent macroprudential measures to curb lenders’ exuberance towards certain segments of retail loans underline our commitment to preserve financial stability without compromising availability of funds for productive requirements of the economy,” the RBI Governor states in the report.