Risk to financial stability on the rise: RBI

Mumbai: The Reserve Bank on Thursday said the sovereign debt crisis in the Eurozone has increased the risks for India's financial stability in 2012. In the Financial Stability Report released in Mumbai, the central bank also said the country faces the risk of lower growth in 2012-13 if the monsoon is below average.

Noting that global and domestic outlook have worsened since last December, the report said, "The combined effect of the dismal global macroeconomic situation and the muted economic performance on the domestic front has caused marginal increase in risks to stability.

"The Euro area sovereign debt problem is continuing to weigh on global recovery. Although slowing global growth has dampened commodity prices, heightened risk aversion and the resultant slowing of capital flows are likely to adversely impact emerging and developing economies."

The central bank also said the country faces the risk of lower growth in 2012-13 if the monsoon is below average.

"While growth has clearly slipped, inflation risks remain. Despite moderation in core inflation, the persistence of overall inflation, in the face of significant growth slowdown, points to serious supply bottlenecks and sticky inflation expectations," the report further said.

Warning that weakness in investment in particular has implications for the near and medium-term growth outlook, the report said: "Headwinds from the global economy will continue to impact domestic growth in the coming quarters.

"Going forward into 2012-13, downside risks to growth are likely to persist, especially if the monsoons are significantly below long period average," it said.

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