India's Central Bank: Country Not Insulated

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India's central bank Monday sought to calm markets in the wake of the U.S. rating downgrade, citing what it called the nation's resilience to global economic turmoil.

"As Friday's market behavior demonstrated, India is not insulated from such developments," the Reserve Bank of India (RBI) said. "It may, however, be noted that in the worst phase of the recent global financial crisis, the (Indian) economy grew by 6.8%, suggesting high resilience emerging from domestic factors."

"While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact," it added.

The central bank echoed comments made by Finance Minister Pranab Mukherjee on Saturday. He insisted that markets in Asia's third-largest economy were capable of weathering "negative sentiments affecting the external world."

Meantime, the RBI said it foresaw no immediate liquidity stress on the banking system and that it would take measures to guard against any turbulence in interest rates.

"In the immediate future, the Reserve Bank's priority is to ensure that adequate rupee and forex liquidity are maintained in domestic markets to prevent excessive volatility in interest rates and exchange rates," the RBI noted.

The central bank said it was closely monitoring the current global indicators.

"We will respond quickly and appropriately to the evolving situation," the RBI said in a statement.
 
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