Will act if global economic situation worsens: Duvvuri Subbarao

MUMBAI: Reserve Bank of India governor Duvvuri Subbarao has pledged to act if the global economic conditions deteriorate steeply as the sovereign credit crisis in Europe and fiscal policy issues in the US could roil the markets.

"Much of the global economy is in a synchronised slowdown, having lost the upward momentum seen in the early months of the year," Subbaro said in his monetary policy review. "In a turbulent global environment, the risks of external shocks are high and the Reserve Bank stands ready to respond to any such shocks swiftly, using all available instruments."

Subbarao left interest rates unchanged citing inflationary pressures, but cut the statutory liquidity ratio by a percentage point to 23 per cent to increase the flow of credit to industry, a move that could put pressure on government to cut fiscal deficit since borrowing costs will rise.

Although there is no cut in key repo rate, the rate at which it lends to banks, or even a cash reserve ratio, the proportion of deposits that bank keep with RBI, lowering of SLR could bring down market interest rates as it would release close to Rs 55,000 crores into the sytem.