RBI to ensure liquidity in domestic markets
08 Aug 2011
The Reserve Bank will ensure adequate rupee and forex liquidity in domestic markets to prevent excessive volatility in interest rates and exchange rates arising from developments following the lowering of US sovereign rating by credit rating agency Standard and Poor's (S&P).
S&P on Friday downgraded the long-term US sovereign rating from AAA to AA+ with negative outlook.
Two other rating agencies, Moody's and Fitch, had recently maintained their AAA rating, but suggested that this could change.
While rupee liquidity is being provided through the Repo window of the Liquidity Adjustment Facility (LAF), the RBI has made an assessment of the ability of the forex reserve portfolio to meet potential forex requirements in the event of significant capital outflows, the central bank said in a release today.
While developments relating to the US economy have raised concerns of continuing turmoil in global financial markets, as investors re-allocate portfolios in response to heightened risk perceptions stemming from both developments, RBI said this may not significantly impact the Indian economy.
"As Friday's market behaviour demonstrated, India is not insulated from such developments. It may, however, be noted that in the worst phase of the recent global financial crisis, the economy grew by 6.8 per cent, suggesting high resilience emerging from domestic factors," RBI noted in its release.
