The downgrade of the long-term US sovereign rating from AAA to AA+ by rating agency Standard & Poor’s raised fears of turmoil in global financial markets as investors globally were expected to alter their portfolios in response to the heightened risk perceptions.
In a bid to cushion its impact, finance minister Pranab Mukherjee reiterated the strong fundamentals of India but conceded that the US, Euro-zone developments may impact capital flows. He also said softening of commodities price may ease inflation making India an attractive investment destination for FIIs.
Just before the Indian markets opened for trading, RBI promised to monitor all key indicators and assess continuously the impact of global developments on rupee and forex liquidity and macroeconomic stability. RBI said it would respond quickly and appropriately to the evolving situation.
The central bank would ensure that adequate rupee and forex liquidity are maintained in domestic markets to prevent excessive volatility in interest rates and exchange rates. RBI felt that though the downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact.
