The New Nation - Internet Edition

Reuters, Washington

The Indian economy and banking system are sound, the Reserve Bank of India (RBI) chief assured the world financial community on Friday, as a global credit crunch intensified and world stock markets tumbled.

"What we are witnessing today in the Indian markets is an indirect, knock-on effect of the global financial situation," RBI Governor Duvvuri Subbarao told a news conference. "We are monitoring the situation on a continuous basis and stand ready to take appropriate effective and swift action."

He said managing inflation, while maintaining growth momentum and financial stability were the immediate short-term priorities of the Indian central bank.

He also said India's foreign exchange and money markets were functioning in an orderly fashion, and the rupee's value should be determined by supply and demand factors in the market.

Subbarao said Western economies had consulted India on the economic crisis, but he welcomed additional information from them "so we are in the loop."

Asked what specific actions he would like to see from a meeting of Group of Seven industrial economies later on Friday, Subbarao said:

"I think it will be useful if advanced countries let us know, and let the world know, what their sense is of the extent and depth of the crisis, and give us details of how the t rescue packages will be implemented."

He also welcomed G7 assurances that they will respond flexibly and swiftly should they encounter problems with the implementation of their rescue packages. He did not elaborate.

He said it was appropriate that weekend International Monetary Fund and World Bank meetings in Washington were occurring "when the global crisis is probably at its peak."