RBI Governor Some Central Bank Policies Could Undermine Global Macroeconomic Stability

RBI Governor Shaktikanta Das highlighted the evolving role of central banks in response to global crisis and the challenges posed by their recent policies. Reflecting on the last three decades, he noted that central banks once believed inflation was under control, shaped by the lessons of the 1970s and 80s. However, the 2008 Global Financial Crisis (GFC) changed their role from lenders of last resort to first responders, a pattern repeated during the COVID-19 pandemic with record-low interest rates and easy monetary policies to safeguard economies. While these measures offered short-term relief, they revealed limitations in sustaining economic recovery and raised concerns about the unintended consequences of monetary interventions. Das noted that public debt has soared post-pandemic, reaching 93.2% of global GDP in 2023, with projections indicating 100% by 2029. Central banks in many countries now face pressure to finance these debts, which threatens their independence and risks undermining macroeconomic stability. However, Das emphasized that India’s approach differed, with liquidity measures being well-calibrated and time-bound. He warned that rising public debt could constrain future monetary policies, underscoring the delicate balance needed to maintain both fiscal and economic stability amidst shifting global dynamics.