NEW DELHI: V Anantha Nageswaran, the Chief Economic Advisor said on March 16 that global uncertainty has been rising after the recent developments in the United States and that governments, businesses, and individuals should keep 'margins of safety' in fiscal, corporate, and savings account planning.
Nageswaran said the global growth estimates of the International Monetary Fund (IMF) given in January looks outdated and countries will have to watch what the developments in the US over the last week would do to confidence, bank lending growth and the subsequent chain effects. Two banks in America have gone belly up over the last week.
In addition, the failure of Silicon Valley Bank last week left many startups, tech companies, entrepreneurs and VC funds nervous and jittery. SVB, the 16th largest bank in the United States, was closed on Friday last by the California Department of Financial Protection and Innovation. Speaking at the Crisil India Outlook seminar, Nageswaran said uncertainty has been on a rising trend and has gone up a few notches in the last week and this is something which countries need to live with, not only this year but for the next year and beyond. "And the important thing to remember is that when you are facing uncertain times, the key thing to do is to make sure that we have margins of safety in our operations, whether it is for corporates or for investors.
The only guidance one can think of is to allow for margins of safety, whether it is in fiscal planning, corporate planning or household balance sheet or savings account planning," he said. He said if the developments that have happened in the last week do create a necessity for the Federal Reserve to pause interest rate hike then we have to wait and see what happens to real interest rates in the United States and what will that do to the US dollar. "And also, what implications it will have for emerging economies, which I believe will be mostly positive in one sense, that is, the pressure on their currencies will abate.
On the other hand, if the Federal Reserve had to go ahead with its tightening programme, having provided liquidity backstop and put in place some other arrangements to make depositors whole, then we have to wait and see what kind of domino effect it might create on other banking institutions and on the overall economy etc. It is a fairly difficult situation that central banks around the world, especially advanced economies, are confronting," Nageswaran said.
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