Michael Debabrata Patra: Recalibrating from divergence to convergence - the Indian experience

Inaugural address by Dr Michael Debabrata Patra, Deputy Governor of the Reserve Bank of India, at the Annual Central Banking Seminar of the Federal Reserve Bank of New York, New York City, 21 October 2024.

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

Central bank speech  | 
24 October 2024

Good morning to you all!

In the Indian tradition, Namaskar, which means I salute the divinity in you.

It is always fulfilling to be here at the Annual Central Banking Seminar of the Federal Reserve Bank of New York. Over the years the seminar has become a landmark forum for the intermingling and cross-fertilisation of ideas and experiences among central bankers from all over the world. It is no wonder, therefore, that it has come to be regarded as a favoured stamping ground where practitioners of the profession rub shoulders and learn from each other about the 'soiling of the hands' in topically relevant issues in central banking.

I am grateful to Dr. Narahari Phatak, Head of International Policy and Strategy at the New York Fed – Hari – for inviting me to this year's seminar. When Hari reached out to me in July, the world was characterised by considerable differentiation in the macroeconomic pathways being charted in different jurisdictions. Hence the defining feature of the conduct of monetary policy by central banks at that time was divergence, motivating the choice of the theme of this year's seminar. Since then, however, much water has flown underneath the bridge and the world has changed in fundamental ways. After the US Federal Open Market Committee (FOMC) began its rate cutting cycle aggressively on September 18th this year, preceded by the second rate cut of the year by the European Central Bank (ECB) and followed by a fusillade of stimulus measures by China, convergence has become the dominant theme, barring some holdouts as in Japan, Brazil and Russia. Hence, I chose "Recalibrating from Divergence to Convergence" as the theme of my address under which I propose to share with you some aspects of the Indian experience (please see the Annex for relevant charts and tables).

II. Shock and Awe

The world is awash in an ocean of uncertainty, whipped up by hurricanes in the form of geopolitical conflict, geoeconomic fragmentation, financial market volatility, and overall policy uncertainty, including political spillovers during the Great Election year when more than half of the world's population faces the ballot box. Financial markets continue to front run and second guess central banks on the size and timing of policy pivots and their consequences.

Frenzy rose to a flash point on August 5th following the rate hike by the Bank of Japan on July 31st and the release of US non-farm payrolls data on August 2nd. A blood bath reminiscent of Black Monday of 1987 was unleashed across financial markets worldwide as Yen carry trade unwound. The fear gauge – the CBOE Volatility Index or VIX – jumped more than 50 per cent, to its highest level since 2020.