Hanging by a Thread

The global economy is facing headwinds beyond its control. This poses serious challenges for India

- RAJAT MISHRA

ECONOMY GDP

TEN YEARS AGO, three words uttered by then European Central Bank (ECB) President Mario Draghi— “whatever it takes”—marked the beginning of the turnaround of the Eurozone debt crisis of 2012. Who knew then that Draghi’s words to save the economy would become a buzzword? Today, in the context of soaring inflation, dampening growth, and clouds of slowdown hovering over developed and developing economies, Draghi’s call of 2012 seems more globally relevant than ever. To combat economic woes on multiple fronts, all are scrambling to foster growth, tame inflation and revive sagging economies. Amid volatility in oil prices and commodities causing inflationary pressures, the Indian central bank and government have their task cut out: tame galloping inflation and foster growth.

This May, India’s retail inflation eased to 7.04 per cent from a near eight-year high of 7.79 per cent recorded in April. But that’s no cause for joy. Since January 2022, retail inflation breached the Reserve Bank of India’s (RBI) inflation tolerance limit of 6 per cent for the fifth successive month. Swinging into action, the RBI hiked the repo rate by 90 bps to 4.9 per cent in the past one month. Indeed, all central banks are sprinting to hike rates, tame inflation, and push growth. In a bid to curb the 40-year-high inflation in the US, the Fed recently hiked the interest rate by 75 bps. The ECB, too, is looking to raise rates for the first time in the last 11 years.