The Hindu Business Line : US slowdown impact to be significant: IMF chief

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US slowdown impact to be significant: IMF chief

‘India can maintain growth momentum’

– Paul Noronha

Recession fears: The RBI Governor, Dr Y.V. Reddy, welcoming the IMF Managing Director, Mr Dominique Strauss-Kahn, at a meeting held in Mumbai on Monday.

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Mumbai, Feb 11 India could withstand the global financial crisis and continue to grow more than eight per cent because of its sound economic and monetary policies in the past, said Mr Dominique Strauss-Kahn, Managing Director, International Monetary Fund.

He said emerging market economies are not immune to the current global financial turbulence, though the impact of the turmoil that was originated in the US may vary in the case of economies of large countries such as India and China.

The slowdown in the US will be significant in its impact and will last for some more time.

Delivering his address at the Reserve Bank of India, Mr Strauss-Kahn said the current crisis was contributed by the long lasting policy of low interest rates and the lax standards followed by the financial institutions and banks. The weakness on the part of the supervisory and regulatory framework, was also a reason why the crisis in the mortgage business went unnoticed for so long, he said.

Emerging market economies are not immune from the economic crisis because of the linkages between the financial sectors. There are huge trade links and spill-overs. India, for instance, has huge capital inflows.

The signs that the emerging market economies are affected by the financial market crisis are visible in the form of volatility in the stock market and the sharp fall in bond price, Mr Strauss Kahn said.

He also said that central banks all over the world are doing what they can do to provide liquidity and citied instances of the aggressive rate cuts by the US Federal Reserve and the European Central Bank.

But it can cause problems for countries like India, which may face huge capital inflows, because of the interest rate differential. “There could be liquidity problems for India,” he said.

In his welcome address, the RBI Governor, Dr Y.V. Reddy, said that India has not contributed to the global imbalance, but it can help in moderating it.

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