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Global, domestic issues raise financial stability risks, says RBI

PTI 28 Jun 2012, 20:39:20 IST
Mumbai, Jun 28: Though the Indian financial system remains robust, risks to financial stability have increased in the recent past due to the deteriorating global macroeconomic situations coupled with subdued domestic growth, the Reserve Bank has said.

“Risks to financial stability have worsened sinceDecember 2011, primarily due to the global risks and domestic macroeconomic conditions,” the regulator said in the Financial Stability Report (FSR) released here today.  

Enumerating the risks posed to stability, the central bank said global sovereign debt problems and risk aversion, domestic fiscal position, widening current account deficit and structural aspect of food inflation pose threat to stability.  Referring to the global environment, the report said deepening crisis in the Euro area will increase the downside risks to global macroeconomic environment.  

“The downside risks to the global macroeconomic environment are expected to intensify further in the coming months, owing to political uncertainty in the Euro area, the persistence of global imbalances, fiscal stress and sluggish growth prospects,” it said, adding the contagion of Eurozone is spreading to other advanced and emerging economies.  

The report pointed out that accommodative monetary policy of advanced economies may create vulnerabilities for the financial system.

About the domestic economy, the central bank report said slowdown in the domestic economy, upside risks to inflation, high fiscal deficit among others remained areas of concern.  

“The downside risks to growth may persist given the headwinds from the global economy and moderation in private and government consumption and investment demand.”