West Asia conflict stoking inflation, posing challenge for central banks: DEA Secretary
The ongoing conflict in West Asia has stoked up inflation and softened business sentiments, creating a challenge for central banks, Department of Economic Affairs Secretary Anuradha Thakur said on May 26."The challenge for central banks is to control inflation, while maintaining the growth momentum," Thakur said during her address at CNBC Awaaz Bharat Economic Samvad.According to a Moneycontrol Poll, the Reserve Bank of India (RBI) is likely to stay pat on interest rates in the June monetary policy committee (MPC) meeting scheduled for June 3-5, while a minority of market participants opine that the central bank may introduce an interest rate hike after three years. The repo rate currently stands at 5.25 percent.Of 14 market participants, 10 are leaning towards the central bank staying pat on interest rates, while four of them are anticipating a rate hike which start from the June meeting. The consensus, however, points out that at least a 50-basis-point hike will be in place in FY27 to combat inflationary pressure due to supply chain disruptions stemming from the West Asia war.The RBI has pegged growth projection for FY27 at 6.9 percent, and CPI inflation at 4.6 percent."Even if global tensions return to normalcy in a few months, but to remain stable continuously, it will take a while. We have to be prepared. Our current account deficit needs to be monitored carefully," said the senior official."We recognize global tensions remain. We get this feedback from investors, global and domestic businesses," she said, adding that the government is alert, and recognizes the issues. "We will take appropriate actions as required.""Rising crude prices, supply chains disruptions, increasing inflation, and tightening financial conditions are all putting pressures on global economy," said the DEA Secretary. She added that in the emerging markets, bond yields have gone up, and capital flows have become volatile."India is much more integrated to the world, a lot more than before," said Thakur.'Stable macro foundations'The DEA Secretary said that India has entered 2026-27 with a more stable macroeconomic foundations as compared to previous episodes of global turbulence. "Domestic demand, capital investment, service sector--these drivers remain strong as on date.""Retail inflation is lower than previous years. Banking sector is in a much stronger position than earlier. Also, our FX reserves are around $700 billion. The situation is stable for now, but we will to have to monitor it continuously," said Thakur.Moreover, since we import most of the crude oil that we need for our requirements -- it directly affects inflation, current account deficit, and government finances, she said. "Fertilizers, metals, and other raw materials have become more expensive."She added that the government expects WPI inflation – wholesale prices – to feed into retail prices soon.On crude diversification, Thakur said that in the past few years, India has started crude oil from 40 countries. "And compared to earlier, 70 percent of crude oil is imported from those countries which are less affected by the current conflict," she said.
