India is in a greater place to navigate monetary turbulence as a consequence of Fed financial tightening in comparison with its scenario in the course of the “taper tantrum” episode after the 2008-2009 world monetary disaster regardless that it stays susceptible, the United Nations mentioned in its “World Economic Situation and Prospects” report.
“This is due to a stronger external position and measures to minimize risks to bank balance sheets. In the medium-term, scarring effects from higher public and private debt or permanent impacts on labour markets could reduce potential growth and prospects for poverty reduction (in South Asia),” the report mentioned.
The report produced by the United Nations Department of Economic and Social Affairs (UNDESA) mentioned India’s financial insurance policies stay accommodative with rates of interest near report lows and liquidity measures nonetheless in place in most economies. “Yet the monetary cycle is gradually shifting as global financial conditions tighten and the recovery gains steam. The Reserve Bank of India has begun to taper liquidity by increasing the volume of reverse repo operations and the cash reserve ratio; it is expected to raise interest rates throughout 2022,” it mentioned.
Accelerated world financial tightening might improve volatility, set off capital outflows and disrupt credit score progress, particularly in international locations with elevated debt, giant financing wants and excessive ranges of foreign-currency-denominated debt, the report mentioned. “Significant financial distress could emerge as highly leveraged firms face greater refinancing costs, particularly in sectors hit harder by lockdowns, even more so if the removal of forbearance measures uncovers a large deterioration in balance sheets,” it added.