RBI should pause, think about decoupling from Fed: SBI Chief Economic Adviser

Kolkata: The RBI should pause and think if it can continue mirroring the US Federal Reserve stroke by stroke in terms of rate hikes or decouple from the American central bank, said the SBI group's Chief Economic Adviser, Soumya Kanti Ghosh. He said that he does not see an end to the rate hike cycle of the Fed in the short-term, which makes a case for the RBI to contemplate about decoupling.

'RBI needs to think if we can decouple from the Fed or maintain the same pace'

While addressing a session organised by the Bharat Chamber of Commerce, Ghosh said, "My point is can we match the Fed stroke by stroke? At some point of time, we need to pause and think whether the impact of the earlier rate hikes (by the RBI) has percolated down into the system. I don't see any end to the Fed's cycle soon, it could be three or more rate hikes going ahead."

"If you look into the 2008 cycle, you will see that central banks raised rates in unison but when they cut rates, they did so based on country-specific factors. The RBI needs to think if we can decouple from the Fed or see if we are keeping pace with them," Ghosh said. He added that the RBI has raised interest rates by 250 basis points since May 2020, and this cycle is still underway. The repo rate at present stands at 6.50 percent.

'There should be an end to this rate hike cycle'

"We need to ensure that there is an end to this rate hike cycle and that should be data-dependent, otherwise at some point of time, this could hurt India's economic recovery," the senior SBI official said.

On speculations of a possible global recession and its impact on India, Ghosh said that there have been talks of a slowdown of exports in such a situation, but a recent SBI report suggests otherwise. He said that the study took into account 19 export commodities, and of these, 14 were found to be "macro-agnostic" (agnostic to the global business cycle).

"This indicates that even if global growth declines, exports will not significantly decline. One of the reasons for that is agriculture exports have picked up, which is usually not sensitive to global factors," Ghosh said.

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