Reserve Bank of India Governor Shaktikanta Das said a synchronised tightening of monetary policy globally has progressively increased the risk of a hard landing, which is a recession to tame inflation. India, however, is differently placed.

The Governor was speaking about the rising inflation across the world and said that inflation in systemically important advanced economies turned out to be persistent rather than transitory. The third shock emanated in the form of aggressive tightening of monetary policy by the US Federal Reserve, and subsequent unrelenting appreciation of the US dollar.

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During the annual research conference of the Department of Economic and Policy Research (DEPR) of RBI in Hyderabad on Saturday, he said, “Spillovers to EMEs (emerging market economies), and to India, were in the form of capital outflows, depreciation pressures on currencies, reserve losses and imported inflation.”

The age-old research issues for emerging market economies like external sector sustainability assessment, feasible range of policy options to preserve sustainability, and analysis of their effectiveness have once again come to the forefront, more so because the nature and size of the spillover risk are very different now, according to the Governor.

Presenting some of the major policy challenges in recent years, he also spoke about how the research department of the RBI has responded to these challenges.

In the usual academic environment of a university or a research institute, the Governor said it was much easier to assess the impact of research done by the staff by aggregating data on published research output, downloads, citations, and impact factors to give authors and organisations a score.

In contrast, it is always hard to track in quantifiable terms the utility and impact of policy research undertaken in central banks, a major part of which is used internally and not published, he said and also appreciated the excellent work done by the DEPR in these turbulent times.

Domestic inflation, on the other hand, was brought down, averaging 3.9 per cent during the flexible inflation targeting regime (June 2016 to February 2020). The research issue then was what factors contributed to the decline in inflation, according to RBI Governor Shaktikanta Das.

The Governor said another important policy challenge was the uncertainty about the time it would take to complete the balance sheet repair process (or, the twin balance sheet problem of corporates and banks), and its ramifications for growth and financial stability.

Policy responses had to be swift and wide-ranging to contain the adverse effects on the overall macro-financial conditions as well as sectoral vulnerabilities, Shaktikanta Das said, adding that the first major challenge was data collection during the first wave of the pandemic, and the associated statistical break in data.

“During the second wave of the pandemic, which was more lethal, collecting information on sector-level stress became even more important for designing targeted policy interventions,” said the governor, adding that the crisis thus created the opportunity to explore and harness the power of Big Data, and strengthen direct feedback mechanisms while working from home.

Big data refers to data sets that are too large or complex to be dealt with by traditional data-processing application software.