India’s central bank chief warns growing risk of global inflation returning

Central banks have managed to engineer a soft landing through a period of "continual and unprecedented shocks," but there is still a risk of global inflation returning and of economic growth slowing down, according to India's central bank chief.

Speaking Thursday in Mumbai, India, at CNBC-TV18's Global Leadership Summit, Reserve Bank of India (RBI) Governor Shaktikanta Das said monetary policy from global central banks had largely "performed well" in recent years despite conflicts, geopolitical tensions and higher volatility.

"A soft landing has been ensured but risks of inflation — as I speak to you here today — risks of inflation coming back and growth slowing down do remain," Das said.

"The headwinds from the geopolitical conflicts, geoeconomic fragmentation, commodity price volatility and climate change continue to grow."

Das pointed to several contradictions in global markets to underline his view, including the appreciation of the U.S. dollar, even as the Federal Reserve is cutting interest rates.

The U.S. dollar index, which measures the currency against six top counterparts including the euro and yen, added 0.2% to 106.71 as of 8:45 a.m. London time on Thursday, briefly notching its highest level since November last year.

U.S. dollar index over the last 12 months.

It comes as investors and economists scrutinize what President-elect Donald Trump's return to the White House could mean for U.S. interest rates.

The prospect of higher trade tariffs and tighter immigration policy under a second Trump presidential term is expected to fuel inflation, which could in turn put the brakes on the Fed's rate-cutting cycle over the longer term.

The Fed delivered its second consecutive interest rate cut earlier in the month, in line with expectations, and traders see a decent chance of another trim in December.

"Government bond yields are rising even as many advanced economies have embarked upon an easing path through rate cuts, underscoring the fact that Treasury markets are influenced by a host of global and domestic factors that are much beyond mere policy adjustments," Das said.

"Second, undeterred by the strong U.S. dollar and high bond yields, prices of gold and oil, the two commodities that typically move in tandem, are showing sharp divergence," he continued.

"Third, an interesting contrast is also emerging between rising geopolitical risks and financial market volatility, while geopolitical tensions have escalated steadily in recent years, financial markets have shown considerable resilience in the face of mounting uncertainties."

Das noted that global trade is projected to remain higher this year compared to 2023, notwithstanding the challenges posed by tariffs, sanctions, import duties, cross-border restrictions and supply chain disruptions.

Turning to India's economy, Das said the country's growth rate remains resilient and predicted that inflation would moderate "despite periodic humps."

He added, "The Indian economy has sailed very well through the prolonged period of turbulence, and it exhibits resilience in the face of constantly emerging new challenges."

Speaking during a separate session at CNBC-TV18's Global Leadership Summit, Piyush Goyal, India's Union Minister of Commerce called on the country's central bank to ease monetary policy to boost economic growth.

Asked whether the RBI should trim interest rates next month, Goyal replied, "I certainly believe they should cut interest rates. Growth needs a further impetus. We are the fastest growing economy in the world [but] we can do even better."

The RBI held the key interest rate steady at 6.5% in October, while changing its policy stance to "neutral", bolstering hopes the central bank may soon be prepared to lower borrowing costs.

RBI's Das said he would refrain from any comments on a December rate move.