Image Source : PTI Booming markets: RBI Governor warns stretched valuations pose monetary stability danger
There is a disconnect between booming markets and financial exercise, Reserve Bank Governor Shaktikanta Das stated on Monday, warning that the stretched valuations of monetary property pose a danger to monetary stability.
“The disconnect between certain segments of financial markets and the real economy has been accentuating in recent times, both globally and in India,” Das stated in his foreword to the bi-annual Financial Stability Report (FSR).
“Stretched valuations of financial assets pose risks to financial stability,” he warned.
The RBI Governor requested banks and monetary intermediaries to be cognisant of this danger, given the interconnected nature of the monetary system.
After a pointy 40 per cent correction in March final 12 months following the COVID-19 outbreak, the Indian markets have grown by over 80 per cent in a rally which continues. The variety of new demat account openings are additionally at a file excessive.
Das had made comparable feedback on the disconnect earlier as nicely however that is for the primary time he’s linking it with the broader facet of monetary stability.
The sharp rally in inventory markets has come even because the GDP is ready to contract by 7.5 per cent this fiscal, as per RBI’s estimates, primarily due to the pandemic and resultant lockdowns.
Easy liquidity situations internationally are stated to be the prime motive for the market rally, with abroad buyers chasing increased yields.
However, some market contributors say the markets are taking a long term name on the Indian financial system, past the near-term unfavourable information flows.
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