US Monetary policy, dollar to be biggest risks for emerging economies in 2023: RBI Bulletin

US monetary policy and course of the US dollar will be the biggest risk in 2023 for emerging and developing countries, the Reserve Bank of India (RBI)'s January Bulletin said on January 19.

Some economies have already adapted and coped up with the difficult situation in 2022, the central bank also said in its monthly bulletin.

“Some of them have shown remarkable resilience during 2022 in coping with global spillovers from these sources, and in calibrating monetary policy to domestic growth-stability trade-offs in a period of high inflation levels and volatility,” the RBI said in the bulletin.

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The RBI Bulletin is a monthly publication that the central bank puts out every month offering insights to the developments in India’s financial sector.

In some parts of this world, debt distress will cause many countries to continue to teeter on the edge of crisis as they negotiate debt relief with bilateral lenders before a multilateral bail-out is feasible, bulletin said.

The release further added that it is estimated that the combination of weaker external demand, elevated inflation, depreciated currencies and domestic headwinds will cost these economies up to a full percentage point in per capita income growth.

Further, The cumulative loss of GDP between 2020 and 2024 is estimated to be as much as 30 per cent of 2019 GDP. Taken together, long lasting effects are feared, perhaps a lost decade.

Also read: Year-ender: Rupee may have a highly volatile ride in 2023 on global headwinds, say experts

Meanwhile, the rupee against the US dollar has depreciated around 10 percent and breached the 82 per dollar mark in 2022.

Sharp depreciation in the rupee was witnessed due to persistent outflows via foreign institutional investors (FIIs) and aggressive rate hikes by the US Fed.

On a financial year basis, between April 2022 and October 2022, the rupee has appreciated by 3.2 percent in real terms, even as several major currencies have depreciated.

Despite this, the rupee has remained more stable compared to the Pound Sterling, Euro, and Japanese Yen, among others, forex dealers said.

RBI Governor Shaktikanta Das had said that the movement of the rupee has been less disruptive compared to peers.