The country’s financial system remains stable in the face of some fragilities observed in the global macro-financial environment, the Reserve Bank of India said in its Financial Stability Report (FSR) released here on Tuesday. However, there are “downside risks to GDP growth” on account of some domestic and global factors and “inflation is likely to continue facing upward pressure”, it said. Sounding optimistic on the banking system, the RBI said, “a series of stress testing in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient though their profitability could be affected significantly.” Hinting at the possibility of a rate hike in June, it said growth is likely to moderate while inflation is likely to remain firm due to rising commodity prices. “This is expected to have an adverse impact on the fiscal consolidation process. Current account deficit is likely to remain elevated due to rise in imports resulting from higher oil and commodity prices, along with challenges of financing, as global conditions increase volatility in capital flows,” it said.
FE
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