MUMBAI: Though elevated economic and trade policy uncertainties are testing the resilience of the global economy and the world’s financial system, the domestic economy, especially the financial system, is in good shape and is a major driver of global growth, the Reserve Bank has said in its financial stability report for the first half of the year.
“Despite an uncertain and challenging global economic backdrop, our economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies,” the biannual FSR released Monday said.
However the report warns that if the tariff wars and other uncertainties lead to a 100 bps slowdown in global growth, it can, ceteris paribus, pull down our growth by 30 bps.
The report blames the volatility in the global financial markets, especially core government bond markets, to the shifting policy and geopolitical environments. Alongside, existing vulnerabilities such as soaring public debt levels and elevated asset valuations have the potential to amplify fresh shocks, the report warns.
On the other hand, the report says, “The domestic financial system is exhibiting resilience fortified by healthy balance-sheets of banks and non-banks. Financial conditions have eased supported by accommodative monetary policy and low volatility in financial markets. The strength of the corporate balance sheets also lends support to overall macroeconomic stability.”
On the health of the banking system, the FSR notes that, “the soundness and resilience of commercial banks are bolstered by robust capital buffers, multi-decadal low non-performing loans ratio and strong earnings.”