ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Aftermath of the US Debt Downgrade

The downgrade of US debt is the second shock to hit the Indian financial markets after the 50 bps hike in repo rates by the RBI on 26 July 2011. While concerns have been raised about the resulting impact on financial markets and economic growth, an analysis reveals that except for the foreign exchange and the equity markets, the impact of the downgrade so far has been muted on all fixed income markets including the money market. Further, inward capital flows are likely to regain buoyancy in the coming months and the near and medium-term outlook for growth and financial stability should remain intact. Given the persistent demand pressures from the private, public and export sectors, and the downside risks to sustenance of capital flows, the appropriate policy stance for the central bank would be to persevere with its anti-inflationary stance.

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