Economy experiencing spillovers from ongoing geopolitical crisis: RBI Bulletin

India’s economy is experiencing spillovers from the ongoing geopolitical crisis in Ukraine, the Reserve Bank of India (RBI) on Thursday.

These spillovers have emerged at a time when the economy recovers from the third wave of the pandemic.

“The ongoing geopolitical crisis has heightened the uncertainty clouding the global macroeconomic and financial landscape even as the world economy struggles to recover from the pandemic,” said the RBI Bulletin for March 2022.

“As the conflict escalates, oil and other commodity prices are blazing to multi-year highs, and financial markets are on edge, driven by massive sell-offs.”

As per the bulletin, amidst these testing times, India’s macroeconomic fundamentals remain strong.

“Consumer and business confidence are rising alongside improvement in demand conditions. On the supply side, a resilient farm sector and a sustained retrieval in both industrial and services sectors are broadening the recovery.”

Furthermore, the bulletin said that unfolding of global developments nevertheless pose downside risks in terms of spillovers.

“Global economic prospects are suffused with heightened uncertainty and clouded by downside risks from geopolitical conflict, with spillovers reverberating across the world. This is happening at a time when countries are still reeling under the pandemic.”

It added that escalation of geopolitical risk, surge in crude oil prices and intensified volatility across global financial markets may smother the embryonic global recovery.

“This shock has also hit at a time when inflation is elevated in many countries. Moreover, with monetary policy normalisation imminent, global financial conditions could tighten further.

“At the receiving end are emerging market economies (EMEs), already reeling under currency depreciation, massive sell-offs by foreign portfolio investors and slowing growth.”




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