More Stories

Informist, Monday, Dec. 16, 2024

NEW DELHI – The impact of digitalisation on economic variables relevant to monetary policy needs to be closely monitored, particularly its impact on inflation, Reserve Bank of India Deputy Governor Michael Patra has said. Thanks to digitalisation, there is a difference between online and office prices, which could warrant a reassessment of traditional inflation models, Patra said at the Maldives Monetary Authority Research conference in Male, Maldives, on Saturday.

Moreover, new technologies pose challenges for monetary and regulatory policy formulation, the deputy governor said. The shift from traditional modes of savings could affect the transmission of monetary policy impulses to the real economy, he said. 

According to Patra, buy-now-pay-later, and credit card-based spending can facilitate immediate consumption, which can lower savings and shift investment decisions, especially of the younger generations. There are also concerns that digitalisation influences borrowing patterns of households, and mis-selling of financial services to households due to poor digital financial literacy, he added. 

"These shifts in consumer behaviour may require central banks and policymakers to transition from traditional macroeconomic models to agent-based modelling, integration of behavioural economics, nowcasting, policy simulations and advanced liquidity stress tests," Patra said. Policymakers also need to adopt "cutting-edge" computational tools like machine learning and big data analytics to examine the real-time, high-frequency data received from digital platforms, the deputy governor said. 

While digital technologies have the potential to drive productivity through efficiency, growth has consistently fallen short of expectations, Patra said. Digitalisation's long-term impact on employment appears benign so far, but its disruptive effects on labour markets have drawn considerable attention, he said, referring to the loss of jobs because of digitalisation and artificial intelligence.

Artificial intelligence is set to affect 40% of global jobs, and as such, education and social safety nets will be crucial, Patra said. Within central banks too, recruitment and retention of financial technology talent are becoming major challenges, with 64% of central banks struggling to recruit and 68% facing retention issues, Patra said, citing a survey by the Central Banking Institute.

"The ambit of research needs to expand to examine digitalisation-driven labour reallocation, job-matching efficiency, new vistas of job creation such as in data science, and digitalisation's role in boosting female workforce participation through remote-friendly jobs," the deputy governor said. 

He also talked about the impact of climate change on macroeconomic stability, saying depreciation pressures on currencies of countries frequently affected by climate disasters could cause financial instability, higher import costs and negative terms of trade.

Green transition policies such as carbon pricing could also affect price stability, potentially precipitating large and long-lasting movements in relative prices and shifts in trend inflation, he said.

"The range of policy options available to mitigate climate risks require dedicated research, especially in the context of the complex, non-linear ways in which climate, the real economy, financial systems and markets interact and affect each other," Patra said, adding that improved interdisciplinary macroeconomic modelling is becoming crucial for understanding directions of causality and feedbacks.  End

Reported by Shubham Rana

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.