Central banks across the world have a tough role ahead: Deepak Parekh

It is projected to fall further in 2023 to 2.7 percent, he said.

More than a third of the global economy will contract this year or the following year, while the big three economies- the US, China, and the European Union (EU) are projected to fall, as per media reports.

This can be substantiated by the fact that major economies like the US have recorded negative GDP results in the last three quarters.

Global inflation is estimated at 8.8 percent, and is projected to settle down at an acceptable level only in 2024, Parekh said during an Indian Chamber of Commerce event.

The Russian invasion of Ukraine has not helped the situation, as the US and the European Union face a hike in food and energy prices which has resulted in a cost of living crisis, Parekh stated.

Most central banks are expected to follow the mantra of higher interest rates for a longer period to tighten money supply and restore price stability, the veteran banker said.

The conundrum that central banks face is to retain a fine balance between frontloading interest rates and curbing inflation, Parekh opined.

If the interest rate rise is overdone, it would stall economic growth, and if it's underdone then the fear of inflation will loom over, the Chairman of the largest private sector bank by assets said. 

“Central banks have a tough role ahead as they try to avoid a hard landing. It’s a case of ‘damned if they do, damned if they don't,'” he said.

The biggest risk today isn't of economic disruption, but of despotic powers, lack of cooperation, and growing weaponisation of trade, Parekh said.

"Right now, the world needs global cooperation in areas like a common regulatory framework for crypto assets, improving the efficiency of cross-border payments, and protection from cyber risk," he maintained.