The country’s economy will go through a period of “painful” adjustment because of the turbulence in the global financial markets, said the Reserve Bank of India (RBI) Governor, D Subbarao. The remarks came ahead of an expected cut in the signal interest rate on Saturday which could cool some of the capital needs in a slowdown-hit economy.
“The fundamentals of our economy continue to be strong. Once calm and confidence are restored in the global markets, economic activity in India will recover sharply. But a period of painful adjustment is inevitable,” Subbarao said in a speech on “Mitigating Spillovers and Contagion – Lessons from the Global Financial Crisis”, at Hyderabad on Thursday.
“The outlook for India, going forward, is mixed. Developments in the real economy, financial markets and global commodity prices point to a period of moderation in growth with declining inflation,” Subbarao said.
He said the central bank will try to ensure “an orderly adjustment” and to soften pains, maintain comfortable liquidity position for banks and ensure conditions for conducive flow of credit to productive sectors, particularly export units and small and medium industries.