RBI committed to take pre-emtive action to contain volatility

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Mumbai, Oct 23 (UNI) The Reserve bank of India today said it will continue to take pre-emptive action to contain excess volatility in the domestic financial market, in view of the continuing global crisis to maintain price stability and inflationary expectations.

The Apex Bank said it was committed to maintain financial stability and active and flexible liquidity management by using all policy instruments, referring to various measures it had taken to alleviatae the recent transient pressures on the domestic financial markets which are related largely to external developments.

''The Reserve Bank is closely monitoring the developments in the global as well as domestic financial markets and stands ready to take such pre-emptive action as may be neessary to contain excess volatility in the domestic financial market,'' the RBI said in its document on microeconomic and monetary developments, ahead of the mid term review of 2008-09 policy statement.

The Apex Bank said the recent episode of global financial market distress, especially during June-October 2008, raised several issues. It appeared to be a transition from a broad based cyclical deterioration to the viability of systemically important financial institutions. ''The financial crisis seems to be spreading across markets, institutions and countries, reflecting problem of contagion'' it said, adding ''it needs to be recognised that there has been a breakdown of trust in inter bank and inter institutional lending.'' RBI said the reversal of such extreme kind of risk perception and full resolution of the crisis would envitably take time.

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