New Delhi, April 29 (IANS). A new report by SBI Research on Wednesday said that if the US-Iran conflict remains unresolved for a long time, the central bank may face difficulties in controlling inflation and reducing the loss in growth.
In times of uncertainty, the report said, a good central bank must be alert against miscalculations, robust against high-cost risks, organized enough to maintain credibility, flexible enough to adapt, and transparent enough that uncertainty about the economy does not become uncertainty about the central bank itself.
“This is what the RBI Governor (Sanjay Malhotra) might have said in his recent speech at Princeton University and hence this message can also be interpreted as an advance guidance,” said Dr Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India (SBI).
In times of uncertainty, monetary policy needs to keep inflation expectations under tight control. Ghosh said it is extremely important to ensure orderly exchange rate flows in the present times, which requires a well-planned package with adequate flexibility.
The total balance of payments (BoP) is projected to be negative ($-28 billion) in FY 2027, with the trade balance also projected to be negative.
The report said that based on the assumption of positive flows next year, there is an estimated surplus of $ 26.5 billion in the capital account.
The exchange rate cannot be treated as a shock absorbing mechanism forever, as due to increasing levels of uncertainties and volatilities it turns into a mechanism of imported inflation which seeps through multiple channels and stabilizes inflation expectations and at times defeats the very purpose of prudent and flexible monetary policy making.
–IANS
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