RBI's OCTOBER 2023 POLICY - STAYING THE COURSE

RBI's OCTOBER 2023 POLICY - STAYING THE COURSE

Friday, September 29 2023

The global situation is challenging because of shifting global trade dynamics, incipient global demand, commodity price fluctuations, pandemic recovery and geo-politics. Geo-politics is marked by high inflation, deteriorating financial conditions, Russia Ukraine war and growing economic fragmentation. The financial system is constrained by higher inflation, rising interest rates and stress in financial markets.

Fragile and skewed global growth, mounting debt levels, digital divide and digital transition, more frequent shocks & constrained policy choices across countries necessitate not more of the same approach but a rejigging of multilateral institutions. There is, therefore, an urgent need to reshape multilateral institutions. The World Economic Outlook (WEO), July 2023 shows global growth to fall from an estimated 3.5 % in 2022 to 3 % in both 2023 and 2024, while global headline inflation is expected to fall from 8.7 % in 2022 to 6.8 % in 2023 and 5.2 % in 2024. China’s central bank cut the one-year loan rate by 15 bps to 2.5 %, which was followed by July 2023 data- weak consumer spending, declining investment, and increasing unemployment. Further, Russia’s central bank hiked its major interest rate from 8.5 % to 12 % after the rouble crashed to an over 16-month low against the dollar. The Fed Reserve hiked its key policy rate by 25 bps to 5.25 % on July 26. Bank of England also raised its key rate for the 14th time by 25 bps on August 3 to check its stubbornly high inflation. The US inflation reduced from 4 % in May 2023 to 3 % in June 2023. UK inflation also decreased to 7.9 % in June 2023 from 8.7 % in May 2023. However, inflation in Japan increased slightly from 3.2 % in May to 3.3 % in June 2023. Hence, global stock markets and overseas investment across geographies are vulnerable to policy change-led volatility exacerbating market risks.

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