Reserve Bank of India (RBI) governor Urjit Patel on Wednesday, August 1 warned that the possibility of global protectionist measures culminating into currency wars can hamper India’s growth prospects.
At the media briefing after a meeting of RBI’s monetary policy committee where he announced the hike in repo rate – which would lead make loans and EMIs costlier, the RBI chief pointed to another sinister possibility.
“We 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 have evolved into tariff wars and now we are possibly at the beginning of currency wars,” said RBI Governor Urjit Patel, according to media reports.
“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 to 7.5 per cent going forward. We do have things that are in our favour and if we continue along that path we ensure that we don’t add to the global risk profile that would adversely affect us,” he said.
Lately, a slew of trade protectionist measures initiated by major economies led by the US has impacted international business sentiment and resulted in retaliatory tariff wars.
To fight back, there is speculation that China may be devaluing the yuan, which will also affect other currencies, including the Indian rupee. By artificially reducing the currency’s value, a nation can use it to prop up its trade as goods and services become cheaper compared to those of other countries.
“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,” the RBI policy statement noted.
The rupee has been Asia’s worst-performing currency this year, already losing over 8% of its value, said a Quartz India report.
On July 7, Union Commerce and Industry Minister Suresh Prabhu said global trade is passing through “challenging times” and the existence of World Trade Organisation (WTO) was under threat.
According to Patel, other risks such as higher crude oil prices and an upward inflation trajectory might also impede India’s growth rate which he expects to grow at 7.4 per cent in 2018-19.