RBI watchful on the spillover impact of Euro crisis.

Reeling under the impact of the Euro crisis, there is a bout of volatility and sense of nervousness in the markets which are on a very sideways movement for a couple of days. As the global cues indicate, people are still bracing themselves for a bit of a correction in global and local markets.

The Reserve Bank of India (RBI) is watchful on the spillover impact of the Euro crisis. In an interview to CNBC-TV18, Deputy Governor of RBI, Subir Kokarn said that it is concerned on the significant increase in volatility of capital flows and consequently on the exchange rates and domestic market conditions.

“We are watching out to ensure that this does not become destructive. It is too early to access the long term implications. If the problem is resolved in some reasonably sustainable way I think the spillover effect on India and emerging economies in general will not be very significant,” Gokarn said.

He added that the excessive volatility in rupee also needs to be managed.

On the Euro crisis, he said that there is a coordinated effort to ensure that the framework does not break down. “There's a lot at stake an enormous amount of investment going into creating this mechanism. It is showing itself to be a little vulnerable to somewhat extreme global economic circumstances,” he explained.

The RBI is concerned that domestically infrastructure is funded dominantly by banks which is not a sustainable process.  So it is looking at ways to diversify and expand the range of domestic channels via foreign directinvestment (FDI) rules that will further fund infrastructure.

Source :- .moneycontrol.com/news/economy