Shaktikanta Das: Global financial stability - risks and opportunities

Keynote address by Mr Shaktikanta Das, Governor of the Reserve Bank of India, at the Future of Finance Forum 2024, organised by the Bretton Woods Committee, Singapore, 13 September 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I am happy to participate in the third annual conference of the Bretton Woods Committee's Future of Finance Forum. The conference brings together leaders and experts from the public and private sectors, multilateral institutions and think tanks to deliberate on emerging issues, trends and technologies in the financial sector. This comprehensive horizon scanning can enrich decision making and help to fashion strategies for exploiting opportunities, managing risks and building future resilience. Against this backdrop, I propose to focus on the global financial stability landscape and the evolving balance of risks and opportunities beyond the current macro-economic environment.

I. Current conditions

The global financial system has exhibited remarkable resilience in weathering several high impact shocks in the recent period. While global economic activity and trade have largely withstood downside risks, the last mile of disinflation has proved to be challenging, giving rise to financial stability risks. As market expectations about the future course of monetary policies re-align with policy guidance from central banks, the prospects of a hard landing appear to be receding. This is reflected in most forecasts, which suggest that near-term prospects are improving, notwithstanding the persisting uncertainties in the international economic and financial environment. Macro-financial health has been shored up by stronger balance sheets of financial intermediaries and supportive, and even proactive, micro and macroprudential policy responses. More recently, however, the implications of monetary policy divergence among countries are beginning to unfold, especially in the form of exuberance and sudden sell-offs in financial markets. Together with the recent unprecedented IT outage globally, these developments have shown how risks to the financial system can materialise on a global scale, and sometimes very quickly, as in a few banks in early 2023. These facts have brought home, once again, the importance of crisis preparedness and robust business continuity plans (BCP).

Nelson Mandela had said and I quote: "After climbing a great hill, one only finds that there are many more hills to climb." While several near-term risks appear to have receded, the global financial system continues to face heightened uncertainty from the outer-term outlook. Some of these risks are well known and well acknowledged, but other risks are just emerging or are lurking in the background. As macroeconomic conditions diverge in different regions of the world and policy responses get increasingly unsynchronized, spillovers to advanced and emerging economies alike are getting amplified.