NEW DELHI: The Indian economy is confronting strong global headwinds, but sound macroeconomic fundamentals and healthy financial and non-financial sector balance sheets are providing strength and resilience and financial system stability, the RBI said in its Financial Stability Report on Thursday.
“For emerging market economies (EMEs), the challenges are even harsher as they encounter global spillovers, debt fragility, currency volatility, and capital outflows,” it said in the report. The global economy too is facing formidable headwinds with recessionary risks looming large, it said.
“The interaction of multiple shocks has resulted in tightening of financial conditions and heightened volatility in financial markets”, the report noted. About inflation, it said though it is elevated, it is retreating in response to monetary policy actions and supply-side interventions.
The RBI, in its fight against rising inflation, hiked the key policy rate by 225 basis points since May to 6.25 per cent to cool off domestic retail inflation that had stayed above the RBI’s upper tolerance limit for over three quarters.
Raising interest rates typically cools the demand in the economy, thereby putting a brake on inflation. The latest hike was on December 7, when the Monetary Policy Committee (MPC) of the RBI increased the policy repo rate by 35 basis points. (ANI)