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Global Financial Crises

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A PRESENTATION ON
“GLOBAL FINANCIAL
CRISIS”

SUBMITTED BY: M.ASWATHI ASHOK AND ANAGHA P.S

CONTENTS

* GLOBAL FINANCIAL CRISIS * DIFFERENCE BETWEEN US/ EUROPE AND INDIA * RBI’S POLICY, RESPONSE AND IMPACT * LESSONS FROM THE CRISIS * MEDIUM- TERM ISSUES AND CHALLENGES

GLOBAL FINANCIAL CRISIS * Proximate causes & Fundamental causes

* Current account balance

* US monetary policy
Policy 1: * Volatility in monetary policy in advanced economies. * Large volatility in capital flows to EMEs.

Policy 2 : * US Monetary policy too loose during 2002-04; aggregate demand exceeded output; large current a/c deficit; mirrored in large surpluses in China and elsewhere.

Policy 3 : * Large Fed cuts in 2007: strong boost to oil, other commodity and asset prices

* Capital Flows to Emerging Market Economies

* Worsening Global Economic Outlook
DIFFERENCES BETWEEN FINANCIAL CRISIS IN US/EUROPE AND INDIA

* What has not happened in India : * No bank losses threatening capital * No bank credit crunch * No mistrust between banks * Our Problems : * Reduction in capital flows * Stock markets * Monetary and liquidity impact * Fiscal stress * Oil, Fertiliser, Food subsidies * Pay Commission, Debt waiver, NRE * GFD/GDP ratio: 5.5-6.0% * India’s Approach to Managing Financial Stability: * Current account: Full, but gradual opening up * Capital account and financial sector

RBI’S POLICY, RESPONSE AND IMPACT

* Expanding rupee liquidity * Reduction in CRR (400 bps) & SLR (100 bps) * Special Refinance to banks without collateral * Managing Forex liquidity * NRE and FCNR(B) deposits: interest rate ceilings raised *…...

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