The Reserve Bank of India (RBI) has said that the country has “sufficient liquid reserves to meet the demand for foreign exchange” even in stress scenarios.
This assertion comes after a careful “assessment of the ability of foreign exchange reserve portfolio to meet potential requirements in the event of significant capital outflows”.
The apex bank has asserted that its immediate priority is to ensure that adequate rupee and foreign exchange liquidity is maintained in the domestic market to prevent excessive volatility in interest and exchange rates.
According to the RBI, the banking system does not face any liquidity pressure at the moment. In any case, the RBI provides rupee liquidity to banks through the repo window of the Liquidity Adjustment Facility (LAF). The banking system, according to the RBI, has adequate stock of statutory liquidity ratio (SLR) securities which are eligible for repo transactions. The introduction of marginal standing facility (MSF) also allows enough leeway for LAF to inject more liquidity, points out the RBI.
Conceding that India is ‘not insulated' from developments across the globe, the RBI has underscored the need for policy and regulatory framework to anticipate and respond to “turbulent financial market conditions arising out of external developments”. Stating that it is closely monitoring all key indicators, the apex bank has said that it “will respond quickly and appropriately to the evolving situation”.
The RBI response comes even as markets (equity, financial and oil markets) across the globe reacted sharply to the Friday's decision of Standard & Poor's to downgrade the long-term debt of the U.S.
On the first day of trading post-downgrading of U.S. rating, the Bombay Stock Exchange (BSE) benchmark index, Sensex, tumbled 546 points in line with global markets. It, however, recouped some lost ground mid-way to still end 315 points down to its 14-month low. The 30-share index opened low and tumbled soon by over 500 points. It recovered some ground only after the Union Finance Minister Pranab Mukherjee asserted the India was better prepared than many others to handle the evolving crisis situation and that its fundamentals continued to remain strong. The Sensex dipped below the 17000-mark to end the day at 16990.18, a level last seen on June 10, 2010. The broad-based National Stock Exchange index Nifty too went below the 5100-level before ending with a loss of 92.75 points at 5118.50.
With the U.S. rating downgrade issue dominating the minds of investors in stock markets across the globe, gold, too, came under intense focus. Gold prices breached the Rs.25,000-mark for the first time ever. Gold of 99.9 and 99.5 per cent purity surged by Rs.395 each to Rs.25,130 and Rs.24,930 per 10 gram, respectively in Mumbai.
