SDG 8: Decent Work and Economic Growth | SDG 17: Partnerships for the Goals
Institutions: Ministry of Finance | Ministry of External Affairs | Ministry of Commerce and Industry | Reserve Bank of India (RBI)
In a statement to the International Monetary and Financial Committee (IMFC) on October 17, 2025, European Central Bank (ECB) President Christine Lagarde addressed the subdued but steady state of the global economy, warning that heightened trade policy uncertainty and geopolitical tensions are expected to soften future growth. The ECB is resolute in steering inflation toward its symmetric 2% medium-term target and confirmed its current deposit facility rate stands at 2.0%, noting that future rate paths remain data-dependent.
The statement emphasized that predictable and open international economic and financial orders are vital for sustaining global prosperity. The ECB identified risks in the financial system, specifically citing elevated liquidity vulnerabilities and high leverage within the non-bank financial institution (NBFI) sector. Furthermore, it stressed the urgency of strengthening macroprudential frameworks for NBFIs and called for consistent global regulation of private digital currencies like stablecoins to prevent regulatory arbitrage and safeguard monetary sovereignty.
This statement underscores the Indian government’s need to align its burgeoning domestic digital economy and financial sector development—including its work on digital currencies and fintech—with evolving global financial stability standards and regulatory requirements being set by bodies like the FSB and ECB.
What are ‘Non-Bank Financial Institutions (NBFIs)’ and why does the ECB view them as a risk?→ NBFIs, often referred to as shadow banks, include entities like mutual funds, hedge funds, insurance companies, and money market funds that perform banking-like functions but operate outside traditional, stringent banking regulations. The ECB views pockets of high leverage and liquidity vulnerabilities in this sector as a significant risk because, without robust oversight, stress in one NBFI could quickly spread across markets, amplifying instability and making the entire financial system more prone to shocks.
Relevant Question for Policy Stakeholders: Given the ECB’s warning on global fragmentation, what immediate trade and financial market policy mechanisms should India pursue to insulate its economy from renewed international trade tensions and financial volatility?
Follow the full news here: https://www.ecb.europa.eu/press/key/date/2025/html/ecb.sp251017~cb692052ae.en.html