Further the impact of climate change, global warming touching new peaks, uneven and uncertain rainfall and destruction of existing crops either due to heavy or deficit of rainfall will have another big impact on global food prices. Further, the supply bottlenecks due to geo political reasons as well as the policy followed by food producing countries to take more of domestic requirements, thereby banning exports will have an impact on supply and prices of essential food items

Having been caught in the financial crisis that engulfed the entire world, most developed nations went for injecting too much liquidity with a quantitative easing policy. This continued for a long period as inflation was in a negative zone and with the objective of reaching the targetted inflation rate, central banks followed the monetary easing policy. Subsequent to the outbreak of Covid-19, most of these countries resorted to further infusion of liquidity to boost the Covid-hit economy as the focus was on health and medical infrastructure. However, the parallel supply bottlenecks led to a sudden spurt in prices of global commodities. When most of the countries and regulators were concentrating on economic revival, and a presumption that the price rise and gap between demand and supply meant a short-term inflation, delayed monetary response without noticing the underlying price pressure.

Even though in course of time prices of commodities moderated, a new problem erupted on the geo political front with the outbreak of Russian Ukraine war, which drastically impacted the supply of essential food items that eventually led to inflation woes.

Another important factor is the crude oil price hike, which invariably depends on a voluntary cut imposed by oil producing countries thereby restricting the supply. This measure badly affects oil importing countries like India, which majorly depend on imported crude for domestic consumption. The outflow of precious foreign exchange for purchase of such imported oil affects balance of payment constituting a major portion of their imports. Moreover, price control and restricted supply by oil producers create imbalance between oil producing and consuming countries. The oil prices will naturally be passed on to prices of essentials, thereby having an impact on inflation.

Recently Saudi Arabia, Russia and other OPEC members surprised everyone by announcing output cuts and it is expected that oil prices are on track to reach $100 a barrel this month for the first year after production cuts from Saudi Arabia and Russia and a rising demand from China. Brent crude, the oil price benchmark, rose to a 10-month high last week of almost $ 94 a barrel, up from $72 a barrel at its lowest point in June- heading for its biggest quarterly increase since the Russia-Ukraine war.

As per latest RBI’s September bulletin on the state of economy, states "A new risk to global financial stability stems from the commodity markets as crude prices ruling above $90 per barrel challenge 10-month highs due to Saudi Arabia and Russia extending voluntary production cuts to the end of 2023. The strength of the US dollar is also keeping crude prices on the higher side. Global inflation is once again under siege as deep deficits in global oil balances become persistent unless global demand is hit by a sharp economic slowdown."

This clearly explains the dynamics of oil prices and their impact on global inflation. Further the impact of climate change, global warming touching new peaks, uneven and uncertain rainfall and destruction of existing crops either due to heavy or deficit of rainfall will have another big impact on global food prices. Further, the supply bottlenecks due to geo political reasons as well as the policy followed by food producing countries to take more of domestic requirements, thereby banning exports will have an impact on supply and prices of essential food items.

In this situation, even though most of the countries like the US following pause stance in their monetary policy, the fear of hike in reference rates or delay in any reduction in reference rates, has led to a long spell of inflation control is bound to impact global markets.

Recently the world bond yields increased substantially in countries like the US (4.43 per cent for 10-year yields), Germany (2.73 per cent) UK (4.24 per cent), France (3.28 per cent), Italy (4.58 per cent) and India at 7.15 per cent for 10 years bond.

The recent decision to include India in JP Morgan's Emerging Market Index has cheered the markets as it is expected that many foreign investors will evince profound interest in Indian bonds leading to good foreign inflows. The sudden spurt in 10-year yields elsewhere has resulted in losses to investors as they would have purchased when the yield is low.

The fight against inflation is not yet over and the much awaited reduction of interest rates may take a longer time. The world growth is likely to be slow in 2024. However, Indian economy is much better in the current global situation as the first quarter GDP growth was at 7.8 per cent and the full year expectation is at 6.5 per cent.

The inflation CPI moderated to 6.8 per cent in August 2023 from 7.4 per cent in July as the Central government has taken many positive steps to ease the supply of food items and vegetables, which led to decline of about 50 bps in food prices.

The RBI is also committed to achieving the targeted inflation of four per cent, though reduced reference rates will take time. Even though, domestic factors weigh high in our monetary policy, evolving global factors and responses of other central banks, will have to be kept in mind in our monetary policy.

Global worries on slowdown in economy will have an impact on our exports. Recently there has been slackness in FDI inflow due to international markets and economic factors. The Centre is examining on how best to further boost global FDI inflow as India needs to supplement domestic savings with FDI flows to spend on infrastructure and manufacturing. A recent report indicated that domestic financial savings rates have dropped. This needs to be enhanced with better returns to investors. Moreover our enhanced GDP growth on sustainable basis should result in an increase in per capita income. Globally, the situation has not reached normal levels. Developing economies have to ensure that vulnerable sections of population and interests of low-income countries are given priority.