Growth talk back as Govt, RBI watch Sensex slide
Finance Minister Pranab Mukherjee and the Reserve Bank of India today stepped in to soothe frayed nerves of panic-stricken investors after global credit rating agency Standard and Poor's on Monday warned India and other countries in the Asia Pacific of downward revisions of their sovereign rating in the event of another global slowdown.
"Given the inter-connectivity of the global markets, an unexpectedly sharp disruption in developed world financial markets could change the picture...The implications for sovereign creditworthiness in Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow," the rating agency said in a statement released an hour after Indian markets opened.
The market closed 315 points down this evening after plunging over 500 points in early trade reacting to the S&P's downgrade of the US debt on Friday from AAA to AA.
Reassuring investors, Mukherjee told reporters outside Lok Sabha, "The recent developments in the US and the Eurozone have injected a certain uncertainty in global markets. These developments could have some impact on India. But as India's growth story is intact and its fundamentals strong, we are in a better position than many other nations to manage the challenge." He also promised that the government would fast-track pending reforms to boost economic growth.
The RBI said it would respond quickly and appropriately to the evolving situation.
"The Reserve Bank is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability," it said before the markets opened. It promised adequate rupee and forex liquidity and maintained that the banking system did not face any liquidity pressures.
Though S&P's did not name any countries in particular that could face a downgrade, it did point out that "the fiscal capacities of Japan, India, Malaysia, Taiwan, and New Zealand have shrunk relative to pre-2008 levels". A downgrade in the sovereign credit ratings makes borrowing more expensive for countries. At present, India carries a BBB- long term rating with a stable outlook by S&P. It was affirmed by the rating agency in April this year. Until 2010, the rating agency had given a BBB- rating with a negative outlook.