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Banking system healthy enough to withstand external headwinds: Shaktikanta Das

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On Monday Governor Shaktikanta Das said that the banking system is strong enough to withstand any negative spillovers from the US Fed‘s Jackson Hole speech.

The governor told the annual meeting of the Fixed Income Money Market and Derivatives Association of India (Fimmda) that the central bank and government have taken sufficient measures, such as maintaining high forex reserves (USD 561 billion as of August 26) and other measures, to keep the banking system healthy enough to withstand any external headwinds.

Since the Jackson Hole summit last week, markets around the world have become extremely volatile and uncertain, with highly destabilising effects on emerging markets, according to Das. However, he added that the aforementioned measures have ensured that the health of our banking system is sound enough to weather any negative spillovers from external headwinds.

The governor also predicted better days ahead for inflation, predicting that the price index will cool off in the second half and moderate further in the fourth quarter.

On the rupee, which has weathered the storm since the US began raising interest rates and has been one of the best performing emerging market currencies, he assured that the central bank is present in the market every day to prevent excess volatility in the rupee and to anchor expectations around its depreciation.

According to him, the rupee has lost only 4.5% against the dollar, while all other currencies have lost much more. In terms of monetary policy, he stated that the policy will be watchful, nimble, and calibrated in the future.

Das, in asking Fimmda to work towards being future-ready, stated that our regulatory model is to adapt to the fast-changing market conditions, with one such response being the introduction of g-secs with 2, 5, 10, 13, 14, 30, and 40-year tenor in 2021.

The governor also said the central bank and the government are working on issuing sovereign green bonds.

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