Most G20 countries see inflation as being sticky and easing more slowly than they would like and have reiterated that they would remain on track with monetary tightening, said V. Anantha Nageswaran, India’s Chief Economic Advisor and Co-chair of the Second G20 Framework Working Group (FWG) meeting.
The two-day FWG meeting under India’s G20 Presidency is being held in Chennai and is co-chaired by Clare Lombardelli, Chief Economic Adviser, U.K. Treasury.
Most member countries are also of the view that financial stability risks can be handled separately and need not constrain further interest rate increases if required, he said at a media interaction on Friday, the first day of the meeting.
On the current banking turmoil in the western world, Mr. Nageswaran said the prevailing sentiment expressed by member countries was that it need not lead to a systemic crisis and that policy makers have things under control and are responding to developments as warranted.
On the U.S. Federal Reserve’s recent commentary, he said there was fodder for arguments on both sides about the future course of interest rates.
“On the Fed’s statement that additional interest rate increases may be needed, I think people are focusing on the word “may” instead of “will”, which suggests some dilution or open mindedness when compared to their commentary at the end of January”, Mr. Nageswaran remarked.
The other statements about inflation and the labour market were slightly more hawkish and stronger than the January statement, he added.
The CEA said there was also concern about natural gas prices, which had come down towards the end of last year due to mild winter in Europe, adding that luck might not continue this year.
He also pointed out that at the request of India G20 presidency, the International Monetary Fund had made a presentation on critical minerals and rare earths like copper, cobalt and lithium which are needed for the transition towards renewable energy and are currently available and processed only in a few countries.
The meeting discussed the need for ensuring adequate availability of these minerals for all countries over the next 20-30 years and developing technologies to minimise dependence on these as well as for recycling, Mr. Nageswaran, said.
“It must be ensured that these technologies are commercially developed and shared with countries,” he noted. “All these elements are very important if the world as a whole has to succeed in tackling climate change,” the CEA added.
Mr. Nageswaran said that downward revision to India’s growth forecast for 2023-24 was not on the cards and there was no prediction for a 2008-2009 like financial crisis for the moment.
On the positive side, he said the representatives felt that food and commodity prices had eased and economic activity in several countries in the last few months had picked up as seen in the Purchasing Managers’ Indices (PMI) data.
Members had noted that China’s reopening had gone off smoothly but also expressed some concern that the reopening could possibly lead to higher demand for commodities down the road. However, most of the members’ remarks had been prepared before the last two weeks’ happenings in the financial sector, Mr. Nageswaran observed.
