Global political events such as Brexit, the forthcoming US elections and political realignments in Europe may pose some risks for the BRICS group of nations and affect their policies, RBI Governor Urjit Patel said today.
Patel at the BRICS seminar on investment flows said,
Potential unconventional sources such as Black Swan type of events like the Brexit vote, the US presidential elections and the political realignment in Europe have blipped on our (BRICS) radars and will affect our policies going forward
The event is being held here ahead of the BRICS summit on October 15-16. The BRICS group comprises Brazil, Russia, India, China and South Africa. Other challenges for the five-nation grouping are energising investment, management of spillovers in view of uncertainties injected into the business climate and prospects of returns by bouts of financial market turbulence usually on account of policy uncertainty from the systemic central banks of the world. Even though the sensitivity to spillovers has waned, he said, managing them claims non-trivial resources and policy attention.
In 2016, we have had seen umpteen times when capital flows to emerging markets flowed and ebbed, he said.
With the current account deficits/surpluses narrow in BRICS countries, these economies seem to be showing some lack of absorption capacities and the wherewithal to convert capital flows into investible resources.
This is incongruous in the context of the ultra-low cost of overseas finance, especially in mature markets and the availability of large pools of footloose capitals driven to low returns, he added.
Patel also flagged commodity headwinds that most of the BRICS nations face and underlined the need for them to manage the commodity price cycles. The modest firming up of commodity prices in the first half of this year has alleviated some stress among net commodity exporters and shaved off some trade gains accruing to some of commodity importers, he noted.
The outlook for commodities, however, generally remains soft and so we must work on a mechanism that even out large real economic effects over the full duration of the cycle so that BRICS economies are not worse off, Patel said.
He added that the BRICS nations need to work hard to improve their business environment in domestic economies so as to make investments attractive.