RBI Governor Shaktikanta Das warns of south Asian debt distress

According to central bank governor Shaktikanta Das, the Reserve Bank of India (RBI) and the Union government are in talks with some South Asian nations to facilitate cross-border trading in rupees.

The governor of India’s central bank voiced concern about the rising levels of debt distress among his country’s trading partners in the area and said he was aware of potential threats a global slowdown posed to his nation’s economy.

To promote Indian exports and encourage the growing interest of the international trading community in the rupee, the RBI established a system to settle international trade in rupees in July.

Facilitating Rupee settlement of cross-border trade. 

We are already in talks with some of the South Asian nations in this area to make it easier for cross-border trade to be settled in rupees. Speaking in New Delhi at the publication launch of the IMF book South Asia’s Path to Resilient Growth, Das said, “That is one sector which has a very great promise in the years to come.

Das stated that RBI is proceeding cautiously when referring to the Central Bank Digital Currency (CBDC), whose trial programs in the wholesale and retail reasons have already been started.

It might be extremely harmful if cloning or anything else were to occur. We are therefore proceeding very cautiously. Additionally, he recommended that South Asian countries may work together in the CBDC sector.

Das noted that India has already signed agreements with nations in the area, including Bhutan and Nepal, regarding the use of the unified payments interface (UPI) for payments. To make cross-border payments considerably simpler in this region, he stated, “We are striving to create a UPI service.”

Greater international trade can boost growth. 

Given the uncertain global trade forecast for 2023, Das stated in his speech on South Asia’s macroeconomic issues and policy goals that more intraregional trade can boost growth and job opportunities.

According to him, The major objective for the area must be to control inflation. Multiple external shocks, such as the disruptions to the global supply chain caused by COVID, the food and energy crises following the Ukraine conflict, and financial market volatility brought on by aggressive monetary policy tightening have all contributed to sustained price pressure in South Asian economies, as well as other parts of the world, according to the expert.

According to Das, the area is particularly susceptible to fuel inflation due to its high reliance on imported fossil fuels. While supply chain bottlenecks and the recent weakening of commodity prices should assist to reduce inflation going forward, threats to GDP and investment prospects may increase if inflation stays at a high level.

RBI Governor Shaktikanta Das warns of south Asian debt distress
Image – Logical Indian

Priority for south Asian nations 

Therefore, putting price stability first may be the best course of action for the region at this time, according to the governor. However, in a situation when expectations for global growth and trade activity are weakening, the approach to disinflation needs to be cognizant of the growing risks to the growth outlook, he said.

Containing external debt vulnerabilities should be the second priority for South Asian countries, according to him, as the rise in foreign debt in recent years and the resulting vulnerabilities have threatened macroeconomic stability in several of the region’s states.

According to home Given the South Asian region’s high reliance on imported energy and fossil fuels, which makes it susceptible to fluctuating oil, gas, and coal prices, and the predominance of geopolitical factors in shaping the dynamics of the global energy market, the region needs to strengthen its energy cooperation agreements to increase resilience to outside shocks. 

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