In a press conference after the monetary policy, RBI Governor Shaktikanta Das said that the GDP growth figures in the US are “good” and it is not right to conclude that the country is gradually heading towards recession. When Das was asked by reporters how he views the fears of recession in the US after the recent reduction in the unemployment rate, he said, “The US economy is performing well. No conclusion can be drawn on the basis of one month’s unemployment data.”
Shaktikanta Das said it would be “premature” to talk about a recession in the US. The RBI governor said that from the RBI’s point of view, they will keep an eye on all incoming data – both from domestic and external fronts. He reiterated that one cannot predict the possibility of a recession or depression based on one month’s unemployment data. He said we will have to wait for other data coming from the US.
Financial markets across the world, including India, have witnessed a massive sell-off this week, albeit at varying levels. Markets fell after a weaker-than-expected jobs report from the United States showed the unemployment rate rising to 4.3 per cent and non-farm payrolls added only 114,000 jobs in July. Unemployment and job creation data, which are key indicators to measure economic health, raised concerns about a possible recession in the US.
Later in the press conference, responding to a question on the growing volume of futures and options trading in India and apprehensions of hard-earned financial savings going into speculative activities, the governor said that it is not that all the savings are going into F&O. He said that the issue was discussed in the regulators’ “early warning group” mechanism.
“I am not suggesting that people should not invest in equities and keep their money in deposits. What I am saying is that this could create liquidity management problems for banks,” he clarified. He said he was only warning about potential liquidity risks to banks. He said banks need to leverage their branch network and increase deposit levels to sustain loan growth.
India’s financial market regulator SEBI has concerns over the speculative activities taking place in the derivatives segment, which is contrary to the purpose for which those asset categories were introduced. By definition, derivatives trading is a complex financial practice that involves buying and selling contracts, called derivatives, that derive their value from an underlying asset. The underlying assets can be stocks, bonds, commodities, currencies, indices, exchange rates or even interest rates. Late last month, SEBI released a consultation paper, proposing several additional norms, on the pretext that this would help reduce speculative trading and, in turn, bring stability to the market.
A study conducted by SEBI in January 2023, titled “Analysis of Profits and Losses of Individual Traders Dealing in the Equity F&O Segment”, found that 89 per cent (9 out of 10) individual traders in the equity F&O segment incurred losses. The same study also pointed out that trading in derivatives has spread beyond tier 1 cities in the last 3-4 years. Meanwhile, in the three-day monetary policy meeting that concluded on Thursday, the RBI decided to keep the repo rate unchanged at 6.5 per cent. This is the ninth consecutive time that the central bank has opted for stability in its monetary policy.
The decision to keep the repo rate steady comes amid persistent concerns about inflation, which remains above the RBI’s target range. The central bank’s commitment to bring inflation to the target of 4 per cent is facing challenges due to food inflation and other economic factors. Governor Das emphasized that the RBI is vigilant about inflationary pressures and will take necessary steps to maintain price stability while supporting the country’s economic recovery. The Monetary Policy Committee’s decision reflects a balanced approach, aimed at controlling inflation without hampering growth.
