Mumbai: The Reserve Bank of India will be vigilant and proactive in responding to any rise in global uncertainties that could threaten growth and stability in the local economy, governor Yaga Venugopal Reddy said on Friday.
Among the factors that need close monitoring are currency markets, liquidity conditions, globally dominant financial intermediaries, and the impact of financial markets on the economy, he said in a speech at Riksbank, Sweden’s central bank.
“Monetary policy in India would continue to be vigilant and proactive in the context of any accentuation of global uncertainties that pose threats to growth and stability in the domestic economy,” Reddy said. Concern that problems in the US subprime mortgage market have impacted the wider availability of credit has roiled global markets recently.
Reddy said emerging economies such as India were at particular risk of foreign capital being withdrawn quickly.
“Of late, considerations of macroeconomic and financial stability have assumed an added importance in view of the increasing openness of the Indian economy,” Reddy said in a speech in Stockholm.
He said it is difficult to predict how the turbulence would play out, and so emerging market economies had to arm themselves with contingency plans. Reddy said India’s growth path is long-lasting but needed a cautious approach.