The Reserve Bank of India (RBI) governor Shaktikanta Das while addressing the 59th South East Asian Central Banks (SEACEN) Governors’ Conference said that unlike previous incidents, the emerging market economies (EMEs) did not face adverse spillover effects from the recent banking sector turmoil in the advanced economies (AEs) in March 2023. RBI governor credited strengthening of prudential regulation through wider adoption of Basel III norms and improvements in supervisory practices, for such an improvement in the banking and financial system.
“The improved macroeconomic fundamentals and buffers of the EMEs in recent years provided a cushion against global shocks of the last four years. The fiscal and monetary stimulus provided during Covid-19 has not been fully rolled back, especially in AEs. This has so far somewhat restricted the degree of spillovers from policy tightening by the AEs,” said Das.
The RBI governor also stated that the greater diffusion of technology in industry and services has gained traction after the pandemic and this has enhanced productivity in several EMEs along with offset oft the adverse impact on output from factors like monetary tightening has cushioned EMEs.
“In fact, technology has opened up new vistas of opportunities for EMEs, particularly in the services sector. Due credit also has to be given to calibrated and clear communication by central banks. Effective communication has now become an even stronger tool than earlier in providing forward guidance and anchoring market expectations,” added Das.
The central bank governor further mentioned that from an emerging market economies (EMEs) perspective, disruptions in trade flows in food, energy and critical industrial inputs due to recurring geopolitical flashpoints and disturbances in key trade routes are raising concerns for food security and macroeconomic management.
“Moreover, in view of the volatility in financial markets and capital flows, these countries remain vulnerable to external shocks. In such an environment, creation of domestic buffers in terms of strategic reserves of critical commodities as well as a strong umbrella of forex reserves become imperative for the EMEs,” the RBI governor pointed out.