Asia's third-largest economy is struggling to fend off damage from the global credit crisis. Last weekend, government unveiled a fiscal package including 4 billion dollar of extra spending.
"The situation way forward is quite uncertain. The RBI will take appropriate action as and when required," Subbarao told reporters after a board meeting in the eastern city of Kolkata.
"The RBI will continue to closely monitor the developments in the global and domestic financial markets and will take swift and effective action as appropriate."
The RBI would also work to minimise stress on the economy, and Subbarao said the sharp fall in inflation of a 8-month low of 8 per cent at Nov end would be a consideration at the next scheduled policy review on Jan 24.
"Certainly, the development will reflect on our next policy (review)," Subbarao said when asked whether the central would revise downwards its inflation forecast for 2008/09.
On Wednesday, Subbarao said growth projections for the financial year ending in March 2009 may be revised downwards and 2009/10 may be a "more difficult year".
Evidence of a sharp slowdown is surfacing consistently in several sectors such as automobiles, textiles, exports, real estate and many analysts expect overall economic expansion to slow to 7 percent in 2008/09.
OneIndia News (With Inputs from Agencies)