BUSINESS RBI notes that global slowdown hits trade and emerging...

RBI notes that global slowdown hits trade and emerging markets

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Even as the monetary policy committee Holding that domestic economic activity is resilient and progressing broadly along expected lines, with India expected to be among the fastest growing economies during 2022-23, the Reserve Bank of India (RBI) expressed concern over the impact of downward projections of the world economy. growth and increased risk of recession on world trade and emerging economies like India.

“Disturbingly, the globalization of inflation coincides with the deglobalization of trade,” RBI Governor Shaktikanta said, adding that the pandemic and war have ignited trends towards further fragmentation, reorientation of supply chains and reduced capital flows, which will pose challenges. in the long run for both globalization and the global economy.

He said these developments pose a greater risk to emerging market economies (EMEs) as they will have to deal with both “trade-offs between domestic growth and inflation and the side effects of more synchronized tightening of monetary policy across the world”.

While EMEs face tightening external financial conditions, capital outflows, currency depreciations and reserve losses simultaneously, India has also seen $13.3 billion worth of portfolio outflows during the fiscal year ongoing and its currency has depreciated by more than 4% this fiscal year.

explained

Hardened external conditions

While emerging market economies (EMEs) are simultaneously facing tightening external financial conditions, capital outflows, currency depreciations and reserve losses, India has also witnessed $13.3 billion worth of portfolio outflows USD during the current fiscal year and has seen its currency depreciate by more than 4% this year. fiscal.

In its statement, the RBI said that India’s external sector weathered the storm as it navigated through the recent global spillover effects and that its merchandise exports increased between April and July 2022. , consequently, India’s trade deficit merchandise expanded to $100 billion in April-July 2022.” It said provisional data shows demand for service exports, especially IT services, remained buoyant in the first quarter despite global uncertainty.

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As there have been concerns about the current account deficitThat said, it is expected to remain within a manageable limit and RBI has the ability to fund it.

“Forex reserves remain strong and the RBI will deal with excess exchange rate volatility,” Das said, adding that they expect easing on the import front as oil and commodity prices ease. they are weakening.

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