: Opinion: Timely flow of credit more important #IndiaNEWS #News By Dr K Srinivasa Rao A steeper rate hike by 50 basis points taking the repo rate to 5. 9% much beyond the pre-pandemic levels was warranted

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Opinion: Timely flow of credit more important #IndiaNEWS #News
By Dr K Srinivasa Rao
A steeper rate hike by 50 basis points taking the repo rate to 5. 9% much beyond the pre-pandemic levels was warranted due to the evolving global macroeconomic headwinds. It will logically hike deposit and lending rates but a timely flow of credit is more important than the cost of credit to keep the growth momentum going. It is necessary to go into the crux of challenges to revamp internal capabilities.
Just when the global economy was bracing to emerge out of the pandemic, central banks encountered yet another set of risks when Russia invaded Ukraine in February. Following sanctions against Russia, the zero-Covid policy of China, supply side disruptions and protracted war combined into a whirlwind of vociferous geopolitical storm calling for accelerated rate hikes and absorption of excess liquidity even if it meant sacrificing a few notches of growth in the near term. Driven by domestic economic considerations, the central banks in advanced economies (AEs) had to opt for a more aggressive policy action sharing a prolonged hawkish tone to fight the twin storms.
But the antidote of AEs to fight these two storms turned into yet another ‘third storm’ for emerging economies (EMs). Galloping interest rates, spurt in bond yields, strengthening of the dollar to a two-decade high by 14. 5% (up to September) against a basket of major currencies piled up into another storm. It caused turmoil in currency markets globally depreciating even Euro and British Pound to historic lows against the US dollar while mauling many currencies in EMs due to the flight of foreign portfolio investments to AEs and heightening import bills.
Domestic Economy
Despite unprecedented uncertainty, the Indian economy continued to remain resilient. But in an interconnected world, it is difficult to remain unscathed from the geopolitical storms that transcend every sector of the economy. The domestic economy fared relatively well with 13. 5% GDP growth recorded in Q1 of FY23 surpassing the pre-pandemic level by 3. 8%. However, there are signs of downside external sector risks that outweigh the domestic growth indicators.
The eight infrastructure industries that comprise the core sector grew at the slowest pace in nine months at 3. 3% in August owing to a higher base and deceleration in output growth. At the same time, other high-frequency indicators in Q2 reflect renewed confidence. Revival in urban demand could get a leg up during the festive season and rural demand too is gaining momentum. Investment demand is picking up opening up the employment sector.
In addition to the farm sector buoyancy, manufacturing purchasing managers index (PMI) expanded to 56.

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