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    International coordination has become weaker in recent years: Shaktikanta Das


    Das said the total amount of bonds with negative yields has risen to nearly $13 trillion.

    Mumbai: The Reserve Bank of India Governor Shaktikanta Das pointed that the global order today faces several challenges, which will test the skills of the international organisations as well as those of national monetary and fiscal authorities.

    “International coordination has become somewhat weaker in the very recent years. Many advanced economies (AEs) have been pursuing low interest rate policies for long without perhaps adequate recognition of their adverse impacts,” Das said at a book release function.

    He pointed that at the global level, the total amount of bonds with negative yields has risen to nearly $13 trillion, implying that nearly a third of AE government bonds trade at negative yields. Equity premium has crossed 4 per cent, which is one standard deviation higher than its long-term average. Return to lower interest rates in AEs poses challenges as leverage has already builtup in the EMEs (emerging market economies) and the needed deleveraging is not complete in many European economies.

    Amid low global interest rates, total credit to the non-financial sector in the EMEs went up from 107.2 per cent of the GDP at the end of 2008 to 194.4 per cent by March 2018, before it dropped to 183.2 per cent at the end of 2018, he pointed.

    Net private capital flows to EMEs in the form of direct and portfolio investments also nearly doubled in the post-crisis period, he said adding that this has posed risks to some EMEs.

    “Some of these risks have surfaced in the form of weak bank/non-bank balance sheets and some remain latent and can surface, especially when the global interest rate cycles turn decisively,” he said.

    The world will be looking to the IMF to suggest dependable solutions. EMEs on their part need to follow policies that promote macroeconomic and financial stability, while focussing on growth, he added.

    “Solutions are turning more difficult to come by as the global economy seems to be moving into a new and unsettling phase in an environment of stressed trade negotiations, rising geopolitical confrontation, and limited policy space and high debt levels in several economies,” he said.

    General government debt of AEs as a group has surpassed 100 per cent of the GDP, he said, adding that fiscal space is also constrained in many of the advanced economies.

    It is important in the backdrop of slowing global growth that policies of monetary and fiscal authorities are well-calibrated so that they support growth without further build-up of leverage and asset price bubbles, said Das.

    “Prudent policies are critical to growth with macro-economic stability. Globally, we need to focus on policy space, judiciously use it and simultaneously undertake structural reforms to improve productivity, innovation and job creation,” he said.

    “The coming year will test the IMF for its policy advice in these areas. How the IMF and the central banks provide forward guidance will be key to sustaining global economic growth while maintaining financial stability,” he added.
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