Money & Banking

US downgrade caused ‘some turbulence'

| | Updated on: Aug 18, 2011

The immediate impact of the US rating downgrade on India is not very damaging, and the RBI's commitment is to ensure that a disruption does not take place, Dr Subir Gokarn, Deputy Governor, RBI, told here on Thursday.

The impact so far has largely been on financial markets and commodity prices, and that's not reason enough for a rethink on the country's growth outlook, he said. According to him, the US rating downgrade caused “some turbulence”, but the real concern is deeper.

‘Negative dynamics'

“There is an increasingly negative dynamics in the US and the growth outlook for the US, the UK, France and Germany has been lowered significantly in the past few days. All of these add up to a pessimistic global scenario,” he said.

“There is significant change in the environment in which we make policy,” he added.

However, the US stance on maintaining current reserves till 2013 will keep commodity prices up, “which is a problem for us and that's where our possible risks lie”, he said.

However, there is a sluggishness in demand, and the likelihood of commodity prices, especially oil, is relatively low, he added.

On the impact of the global scenario on investment, Dr Gokarn said that it will have an impact on portfolio allocation.

“As long as we sustain of growth trajectory, it might well work in favour of emerging markets. It comes down to how well we manage our macroeconomic conditions,” he added.

Published on August 18, 2011

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