RBI is committed to creating an enabling environment for new disruptive innovations
Inflationary pressures rise and external funding conditions tighten, posing financial stability challenges in emerging market economies
Indian rupee is holding up well in comparison to both Advanced and EME peers. This is due to India’s strong, resilient, and intact underlying fundamentals.
The Governor of the Reserve Bank of India, Shri Shaktikanta Das, stated at the Bank of Baroda’s Annual Banking Conference in Mumbai that the world of banking is changing and Banks must prepare for a dynamic environment while maintaining a focus on appropriate business models, sustainability, stability, and consumer centrality.
Good governance is still critical to success and should not be compromised. Stakeholders must be safeguarded against digital fraud, data breaches, and cybercrime. At the end of the day, banking is a service, and improved customer protection and experience should be prioritised.
According to the Banking Regulator, the RBI is committed to creating an enabling environment for new disruptive innovations to be accommodated in a sustainable manner while maintaining financial stability.
The ongoing European war and the pandemic have made the global macroeconomic outlook extremely uncertain. Unexpectedly high inflation is affecting countries, including food inflation, supply chain disruptions, and demand-supply imbalances in product and labour markets. Central banks are rapidly tightening monetary policy, raising concerns about an impending recession. Commodity prices have fallen slightly since their peak in June, but they remain high. Higher US interest rates, combined with increased risk aversion among global investors, have fueled safe haven demand and pushed the US Dollar higher.
Currencies of Emerging Market Economies (EMEs) and even some Advanced Economies (AEs) are falling in value relative to the US dollar. As a result, inflationary pressures rise and external funding conditions tighten, posing financial stability challenges in emerging market economies.
Speaking on the issue of depreciating rupee to record lows on foreign portfolio funds exiting India, Governor Das said that emphasized that globally currencies are falling including reserve currencies such as the Japanese yen, the Euro and the British pound sterling.
Portfolio funds are liquidating assets and seeking refuge in safe havens. Capital outflows, currency depreciation, and reserve drawdowns disproportionately affect emerging market economies (EMEs), complicating macroeconomic management in these countries.
Despite this, the Indian rupee is holding up well in comparison to both Advanced and EME peers. This is due to India’s strong, resilient, and intact underlying fundamentals. The recovery is gradually improving. The current account deficit is relatively small. Inflation is levelling. The financial sector is well-capitalized and financially secure. India’s external debt to GDP ratio is decreasing, and its foreign exchange reserves are sufficient.
Dr Das said that “We will continue to engage with the forex market and ensure that the rupee finds its level in line with its fundamentals. I would like to reiterate that we have no particular level of the rupee in mind, but we would like to ensure its orderly evolution and we have zero tolerance for volatile and bumpy movements”
Speaking on the risk associated with climate, Dr Das said that, Banks are also increasingly aligning their operations, including asset assessment, with the global climate sustainability agenda. Banks would need to develop appropriate business strategies and strengthen the governance framework in order to assess the associated risks.