In recent years the global economy has gone through a period of continual and unprecedented shocks. This was a period of great volatility, as I have described it elsewhere, quite distinct from the earlier era of the great moderation. Complex and varied shocks of a global pandemic, supply chain disruptions, wars, geopolitical conflicts, and climate change hit the global economy very hard. During this period of global volatility, these were not typical shocks dealt with in standard textbooks or having standard policy responses. Now, sailing through this turbulent period has therefore been a daunting challenge for every country, including India.
After almost a synchronous adoption of expansionary policies following the pandemic, central banks across the world resorted to an equally synchronous monetary policy tightening when high inflation bounced back in the face of supply chain disruptions and the onset of the war in Ukraine. Overall, these policies across the globe appear to have worked well. That is, the policies of the central banks in tightening interest rates and tightening monetary policy when the war commenced, and prior to that, in loosening and going for an expansionary policy when the COVID pandemic hit the entire world. I think this time around, the policies of the central banks across the globe have worked well. Soft landing has been ensured, but risks of inflation, as I speak to you here today, but risks of inflation coming back and growth slowing down do remain. I'm talking about the global scenario now. The Indian situation has its own characteristics. I'm now focusing on the global scenario. The headwinds from geopolitical conflicts, geoeconomic fragmentation, commodity price volatility, and climate change continue to blow during this entire period of great volatility which I referred to a little while ago.
Maintaining price and financial stability have posed difficult trade-offs, as evident among others from the banking sector turmoil in certain advanced economies in early 2023. The challenge for central bankers in particular has always been between doing too little or too late on the one hand, and doing too much or too early on the other. Reading the interplay between monetary policy actions and the developments in the financial sector as well as the evolving situation correctly and timing the decisions are always challenging. Central banks have by and large performed well this time around in this challenging global environment.
Let me highlight certain contradictions globally which we observe at the current juncture. First, government bond yields are rising even as many advanced economies have embarked upon an easing path through rate cuts, underscoring the fact that treasury markets are influenced by a host of global and domestic factors that are much beyond mere policy adjustments. Incidentally, even the US dollar is now appreciating although the US Fed has started cutting rates. Second, undeterred by the strong US dollar and high bond yields, prices of gold and oil, the two commodities that typically move in tandem, are showing sharp divergence. Third, an interesting contrast is also emerging between rising geopolitical risks and financial market volatility. While geopolitical tensions have escalated steadily in recent years, financial markets have shown considerable resilience in the face of mounting uncertainties. Fourth, global trade is projected to remain higher in the current year than the previous year, notwithstanding the sanctions, tariffs, import duties, rising cross-border restrictions, and supply chain disruptions. Fifth, emerging market economies have shown greater resilience than advanced economies in the current phase.
Now let me turn to the Indian context. Amidst these headwinds and contradictions, the Indian economy is sailing through smoothly, powered by buffers like strong macroeconomic fundamentals, stable financial system, and resilient external sector. Our endeavor in the Reserve Bank has been to seize every opportunity to further strengthen our fundamentals through a prudent and proactive policy approach. Our primary focus has been to maintain financial stability, which breeds growth and prosperity. In 2019, we faced severe stress in the non-banking, that is, in the NBFC sector. Liquidity had dried up and there was a crisis of confidence in the financial markets. There were also certain instances of bank stress, both in commercial and cooperative banking sectors. In all these exigent situations, the Reserve Bank took effective measures to stem the crisis from snowballing and to restore stability and confidence in the markets.
In parallel, we strengthened our regulatory architecture and supervisory vigilance to proactively identify weaknesses and be future ready. It is therefore appropriate to reflect on our experience during this period, not just, if I may say so, as a success story but more importantly to draw lessons for the future. When the COVID-19 pandemic hit us, our response was swift and decisive. We put in place business continuity measures even before the nationwide lockdown was announced. We set up a special quarantine facility with about 200 officers and service providers and other staff to ensure continuity in financial market operations and in payment systems. All regulated entities were also advised to take immediate contingency measures to ensure business continuity and manage the emerging risks.
Turning to monetary policy and the liquidity operations that we have undertaken during this period of continuing challenge, what I call the great volatility, monetary policy in fact, as we look back, has completed a full cycle in the last six years: an easing cycle during 2019-22 and a tightening cycle of equal magnitude thereafter. We have used the flexibility embedded in flexible inflation targeting to prioritize growth or inflation depending upon the prevailing conditions and the outlook. For instance, when economic activity came under severe stress during the COVID-19 pandemic, we prioritized growth over inflation and cut interest rates. We also infused huge liquidity into the system. These measures were nuanced, keeping in mind price stability challenges that may arise in the future. In addition, forward guidance during the easing phase complemented and reinforced monetary policy and liquidity measures. In parallel, appropriate regulatory measures consisting of moratorium on repayment of loans and resolution frameworks for stressed loans were also announced. Later, when the Russia-Ukraine war caused massive supply disruptions in key commodities and threatened inflation to get out of control, we shifted our focus from growth to controlling inflation. We front-loaded our monetary policy actions and changed our stance to withdrawal of accommodation.
We remained nimble and agile in our liquidity management operations. Further, fiscal-monetary coordination, that is, the Reserve Bank's rate hikes along with proactive supply-side measures by the government, helped in controlling inflation and anchoring inflation expectations. Coming to a more recent period, the MPC in its meeting on October 7th to 9th, that is in the last month, took note of the prevailing and expected inflation-growth dynamics and decided to change the monetary policy stance from withdrawal of accommodation to neutral. It also decided to remain unambiguously focused on a durable alignment of inflation with the target while supporting growth. The change in stance provides greater flexibility and optionality to act in sync with the evolving conditions and the outlook. Overall, while average growth during 2021 to 2024 remained buoyant at above 8%, the receding of headline inflation in 2023-24 and 2024-25 up to September to within the tolerance band bears testimony to the success of the Reserve Bank's policies.
What is equally important is that all these actions did not undermine financial stability, and this is a point I would like to emphasize. Our rate hikes were preceded or accompanied by prudent risk management practices in the form of greater flexibility to the banks in holding government securities under the held to maturity, that is, the HTM category, that minimized mark-to-market losses. It is evident that while designing our responses to both the pandemic and the inflation observed thereafter, our policies were flexible and balanced. We remained consistent with our mandate of price stability while keeping in mind the objective of growth. The underlying mandate of financial stability was also adhered to.
During this entire period, communication became an important tool to complement our policy actions. During the pandemic, our endeavor was to give confidence to the wider economy, to the financial markets, and to the public at large. In the monetary policy statement on April 17, 2020, in the early part of the lockdown, I had said, I quote, 'Although social distancing separates us, we stand united and resolute. Eventually we shall cure and we shall endure.' Unquote. We began using quotes from Mahatma Gandhi like, and I quote, 'In the midst of death, life persists. In the midst of darkness, light persists.' This was in April 2020. And going forward, one more quote from Mahatma Gandhi that reads as follows: 'It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue.' This was in May 2022, and several other quotes of similar nature. In particular, I would like to refer to my December 2023 statement following the macroprudential measures undertaken in November last year. I quote, 'Financial stability is a public good. We do not wait for the house to catch fire and then act. Prudence at all times is our guiding philosophy.' The spirit behind such communications were indeed key to withstanding a period of multiple crises and giving confidence to the markets. Our communication was backed up by appropriate policy actions. It's not just that words were being sounded, statements were being made, but they were backed up by appropriate policy actions. Evidently, communication played a critical role in maintaining stability in the turbulent times of the recent past.
