Brace for currency wars, says RBI governor Urjit Patel

Mumbai: The RBI governor on Wednesday said that the global financial markets are possibly seeing the beginning of a currency war and India should take all measures under its control to ensure macro economic stability.

Emerging market currencies including the rupee have remained under pressure for the past few weeks due to concerns over higher interest rate in the United States.

However, the persistent fall in the Chinese Yuan amidst rising trade protectionism has raised concern regarding currency war to gain competitive advantage in the international market.   

“We have already had a few months of turbulence behind us and it looks like that this is likely to continue. For how long, I don’t know. But the trade skirmishes evolved into tariff wars and now we are possibly at the beginning of currency wars. Given this we have to ensure that we run a tight ship on the risks that we control to maximise the chances of ensuring macro economic stability and continuing with the growth profile of 7-7.5 per cent going forward,” said Urjit Patel, governor, RBI.

According to him there are certain factors, which are favouring India. “If we continue along that path, we ensure that we don’t act to the global risk profile that would adversely affect us,” he added.

The monetary policy committee (MPC) observed that the economic activity in major emerging market economies (EMEs) has slowed somewhat on volatile and elevated oil prices, mounting trade tensions and tightening of financial conditions.

Global trade lost some traction due to intensification of trade wars and uncertainty stemming from Brexit negotiations. Base metal prices have fallen on the general risk-off sentiment triggered by fears of an intensification of trade wars.

While the MPC sounded optimistic regarding the growth impulses in the domestic economy, it however remained slightly cautious regarding the impact of global trade wars on growth.  “Recent global developments raise some concerns. Rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity. Geopolitical tensions and elevated oil prices continue to be the other sources of risk to global growth,” MPC said.