Noting that India was not insulated from global developments like the downgrade of United States, the Reserve Bank of India (RBI) on Monday said it was closely monitoring the situation and would continuously assess the impact on the Indian economy and financial markets.
RBI also said the entire policy and regulatory framework of the country must be "prepared to respond to turbulent financial market conditions arising out of external developments".
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"Developments relating to the US economy last week have significantly increased uncertainty about its prevailing condition," it said in a statement.
"The Reserve Bank is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability. We will respond quickly and appropriately to the evolving situation," it added.
The US lost its top-notch 'AAA' rating this weakened and the development has further added to the worries of global markets, already grappling with the debt crisis in Europe.
"A sharp fall in US equity markets on Thursday was followed by a downgrade in the long-term US sovereign rating by rating agency Standard & Poor's from AAA to AA+ with a negative outlook on Friday," the central bank said.
"Two other rating agencies, Moody's and Fitch, had recently maintained their AAA rating, but suggested that this could change. The downgrade has raised concerns of continuing turmoil in global financial markets, as investors re-allocate portfolios in response to heightened risk perceptions stemming from both developments," RBI said.