Geopolitical shifts to be new sources of shocks for central banks: RBI governor Shaktikanta Das

Persistent geopolitical disturbances and global economic fragmentations will present formidable challenges to central banks, Reserve Bank of India governor Shaktikanta Das said, with his observations coming at a time when violence in the Middle East has escalated.

“Experience of the past few years shows that the journey ahead may be marked by dynamic shifts in geopolitics, with frequent incidences of supply chain disruptions and greater barriers in trade, technology and capital flows,” Das said at the Nepal Rastra Bank, Kathmandu on Tuesday.

“These will be the new sources of shocks, often not well captured in existing macroeconomic models,” he said, calling for central banks to be vigilant and shape their responses in a nimble, timely and calibrated manner.

Pointing to new possibilities opened up by fintech innovations, Das said that the challenge for central banks would be to drive digital innovation towards a more efficient, prudent and stable financial system while strengthening price and financial stability.

Amid innovations in the fintech space, central banks would have to deal with issues of regulation, supervision of digital lenders, observance of fair practice codes, data security and third-party service providers, he said.

Speaking about recent advancements in artificial intelligence and machine learning tools in financial services, the RBI governor said that while the scope of these instruments was enormous, they presented challenges related to data privacy, algorithmic bias and discrimination, cyber security and ethical issues.“Central banks and other players in the financial services ecosystem have to enhance their own capacities to deal with these challenges,” he said.