By Nikunj Ohri
NEW DELHI (Reuters) -Taming inflation is the top priority for South Asian countries as risks to growth and investment outlook could rise if price pressures persist at high levels, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday.
Speaking at an event organised by the International Monetary Fund (IMF), the Indian central bank chief said policy challenges in the region have sharpened due to the Covid-19 pandemic and the war in Ukraine.
“While the recent softening of commodity prices and supply chain bottlenecks should help in lowering inflation going ahead, risks to growth and investment outlook may rise if inflation persists at high levels,” Das said.
“Prioritising price stability may therefore be the optimal policy choice for the South Asian region in the current context.”
Das said the region’s heavy dependence on imported fossil fuels has made it vulnerable to fuel inflation while food inflation has averaged more than 20% during the first three quarters of 2022.
“For successful disinflation, credible monetary policy actions accompanied by targeted supply side interventions, fiscal trade, policy and administrative measures have become the key instruments,” he added.
Apart from inflation, Das said reducing external debt vulnerabilities, moving focus to high productive sectors, strengthening energy security, cooperation on greener economy and increasing tourism were key areas of focus for the region.
Earlier, IMF Deputy Managing Director Antoinette Sayeh said India is in a relative “bright spot” in the world economy, but needed to leverage its existing strength in services exports and extend it to job-rich manufacturing exports.
Intra-regional trade in South Asia is only at one-fifth of its potential, Das said, adding that boosting it can enhance growth and employment opportunities for the nations in the aftermath of the pandemic.
“The other initiatives that the RBI and government have together initiated is the rupee settlement of international trade,” Das said.
“We are already in discussion with some of the countries in this region to facilitate rupee settlement of cross border trade in the South Asian region. So that is one area which has a very big potential in the years to come.”