labels: rbi, economy - general
Indian economy not insulated against global risks: Reddynews
18 October 2007
Mumbai: India''s economy is not insulated against risks from global developments, inflationary pressures and volatility in global financial markets, the Reserve Bank of India (RBI) governor Y V Reddy said.

Reddy said increased leveraging of overseas financial assets has enhanced the Indian economy''s vulnerability to global risks but large changes in liquidity conditions were obscuring the assessment of risks, he pointed out.

"Risks from global developments continue to persist, especially in the form of inflationary pressures, re-pricing of risks by financial markets and the possibility of a downturn in some of the asset classes,'''' Reddy said in a speech delivered in Washington.

"Given the flux associated with both the financial markets and the monetary policy settings globally, India cannot be immune to these developments," he said in the speech made available on the RBI''s website.

"Contextually, we in the Reserve Bank are, therefore, maintaining enhanced vigilance to be able to respond appropriately to the prevailing heightened uncertainties in global financial as well as monetary conditions," he said.

Reddy said there were many challenges facing the economy in the medium term, which include improving farm productivity, augmenting infrastructure and a shortage of skilled manpower.

"The recent upward trend in the global prices of major food items have significant implications for the domestic agricultural sector and overall macroeconomic and financial stability.''''

But short-term prospects were by and large benign despite global uncertainties, he said.

The RBI expects the economy to grow by 8.5 per cent in the current fiscal year ending March 2008, lower than growth of 9.4 per cent in 2006-07.

Reddy declined to comment directly on the outlook for the central bank''s policy. He also avoided judgment on the government''s proposed curbs on foreign purchases of the country''s stocks, which caused a sell-off in equities yesterday.

"We have obviously some pressure in terms of growth in the monetary indicators,'''' he said. "We will have to review'''' the data when central bank officials meet later this month, he said.

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Indian economy not insulated against global risks: Reddy