US downgrade impact on India 'limited': RBI

MUMBAI: India's central bank on Monday said risks to the growth of Asia's third-largest economy were "limited" after the US credit downgrade that has spooked global markets.

"India is not insulated from global developments. But in the worst phase of the recent global crisis, India's economy grew by 6.8 percent, suggesting high resilience emerging from local factors," the bank said in a statement.

"While downside risks to growth may have increased in the wake of global developments, they are likely to have a limited impact," the RBI added.

The bank said it would maintain sufficient rupee and foreign-currency liquidity to prevent any excessive volatility in local markets.

"The Reserve Bank (of India) is closely monitoring all key indicators and will continuously assess the impact of global developments on the rupee and macro-economic stability," it said.

Indian shares slid more than three percent to a 14-month low in morning trade Monday, led by a sell-off across Asia on concerns that a double-dip recession may be on the horizon.

India posted nearly seven percent growth during the 2008 global financial crisis, helped by substantial fiscal stimulus and a still relatively inward-looking economy.

While the country's economy has liberalised in the past two decades, it still remains largely domestically driven.

India's finance minister Pranab Mukherjee on Saturday said the US downgrade was "grave" but insisted the country's economy would still grow strongly.

Economic output, however, has fallen as a result of 11 interest rate hikes since March 2010 to tame near double-digit inflation.

Annual industrial output growth slowed to 5.6 percent in May -- its weakest pace in nine months and down from 8.5 percent expansion in the same month a year earlier. Data for June is expected on Friday.

Copyright AFP (Agence France-Presse), 2011