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October 22, 2001
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'India well prepared to face external economic shocks'

CREDIT
POLICY
The Indian economy with adequate foreign exchange reserves and lower share of external trade is prepared to meet any external shocks including the slowdown in the global economy, Reserve Bank of India Governor Bimal Jalan said on Monday.

"The real effect of global slowdown may not be much as our external trade as a percentage of gross domestic product is low (11-12 per cent), Jalan told reporters in Bombay after announcing the mid-term review of Monetary and Credit Policy 2001-02.

"Our liquid assets (foreign currency) are relatively high to handle any disruption," he added.

India was relatively insulated from this global slowdown because of its service oriented and cost-effective information technology sector, Jalan said.

The outlook for growth in major industrialised countries as also the emerging economies has become adverse with estimated growth rates being scaled down, Jalan added.

An optimistic Jalan said despite several unexpected external and domestic developments, India's external situation has remained satisfactory.

Referring to the September 11 terrorist attacks on the World Trade Centre and Pentagon in the United States as 'adverse external developments', Jalan said that the central bank has initiated measures to protect the Indian financial markets.

He added that the RBI announced the following measures -- between September 15 and 25, 2001 -- in this regard.

September 15: Despite some emerging pressures in the forex market RBI announced that it does not intend to presently shift its monetary policy stance with regard to keeping interest rates stable with adequate liquidity.

RBI further assured the market that it will be prepared to sell foreign exchange directly or indirectly, if it becomes necessary in order to meet any unusual supply-demand gap in view of the prevailing uncertainities.

September 20: In consultation with the Centre RBI permitted Indian companies to increase the FII investment limit upto the sectoral cap/statutory ceiling, as applicable.

September 22:With effect from September 22, banks were allowed to finance stock brokers for margin trading for an initial period of 60 days in actively traded scrips.

September 24:In consultation with the Centre, a special financial package was announced for large value exports of six select products, which were internationally competitive and had high value addition.

September 26:Interest rates charged by scheduled commercial banks on pre-shipment and post-shipment rupee export credit were reduced by 1.0 per centage point for a period of six months (upto March 31, 2002).

Jalan said that the measures had the desired effect of moderating possible panic reactions and reducing volatility in the financial markets, particularly in money, forex and government securities markets.

"RBI will continue to follow the same approach of watchfulness, caution and flexibility in regard to the forex market, closely monitor developments in the financial markets at home and abroad and carefully coordinate its market operations," he added.

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The Monetary & Credit Policy

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