MUMBAI: The Reserve Bank economists have as called for a tightrope walk that policymakers must undertake amidst the rising tide of trade wars and rupee fluctuations by balancing the impacts of these headwinds, even as they feel the resultant economic slowdown may lead to downward pressure on the inflation front.
In the latest bulletin, which is not an official view of the RBI, the economists said the domestic economy is exhibiting resilience despite escalating trade tensions and global uncertainties on the one hand and a robust agriculture sector and improving consumption demand being the silver-lining for the economy.
"Policymakers are now walking a tightrope, having to balance the upward strain of rising prices on account of tariffs and currency depreciation, as well as the downward pressure on inflation from economic slowdown," the economists said in the March bulletin, released Wednesday.
The resilience of the global economy is being tested by escalating trade tensions and a heightened wave of uncertainty around the scope, timing, and intensity of tariffs, that the US president Donald Trump has unleashed from this month.
“While engendering heightened volatility in global financial markets, these have also caused apprehensions about the slowdown in global growth," the bulletin article on the 'state of the economy' said.
On the domestic front, they said the economy continues to demonstrate resilience as evident in the robust performance of the agriculture sector and improving consumption despite escalating trade tensions.
But they flagged that the resilience of the global economy is being tested by escalating trade tensions and a heightened wave of uncertainty around the scope, timing, and intensity of tariffs as the trade wars have created heightened volatility in global financial markets, apart from also causing apprehensions about a global growth slowdown.
"Amidst these challenges, the domestic economy continues to demonstrate resilience as evident in the robust performance of the agriculture sector and improving consumption," they said.
The article further said the country’s macroeconomic strength to face these challenges is bolstered by a decline in retail inflation to a seven-month low of 3.6% in February due to a steep correction in food prices.
The article also blames the continuing foreign portfolio outflows to the issues saying these are reverberations of a tumultuous external environment.