New York:Even while expressing concern over inflation numbers rising to ''unacceptably high'', RBI governor Y V Reddy said in New York today that Indian financial markets were not vulnerable to overseas developments.

Recently the IMF and the ADB had warned of a global slowdown and have revised growth figures downwards (See: IMF joins ADB in predicting slower growth in 2008) voicing fears of a global slowdown and its impact on the global economy.

''The current turbulence in financial markets and institutions – particularly in the USA, has raised enquiries about the possible contagion,'' said Dr Reddy while presenting a paper, India: The global partner at the World Leaders' Forum at Columbia University, New York.

Dr Reddy said, ''The money, government securities and foreign exchange markets have been stable in India and, in our view, they may not be vulnerable in terms of direct and first-round effects. However, the Indian equity markets, which often reflect global trends, have been volatile in the recent months and that has some impact on changing sentiments.

''We have a bank-dominated financial sector, and banks have a strong capital base.

''In response to the global developments and the rapid growth in money supply, credit, and asset prices in India, we have since 2004 increased, in regard to banks, the risk weights and the provisioning requirements, and decreased or rationalised the exposure limits to select sectors. These were combined with prudential stipulations on off-balance sheet items and relationships between banks and non-bank finance companies.

''Several safeguards have been built in terms of prudential guidelines and access to repo markets to guard against liquidity-related problems to banks. Above all, withdrawal of monetary accommodation commenced in 2004 and has been gradually fine-tuned, remaining sensitive to early signs of overheating, while related prudential measures were addressing exposure of banks to risks in assets. Hence, in our assessment, the Indian financial sector is likely to be less affected by the contagion than most other EMEs, in respect of first-round or direct effects''.

Dr Reddy, however, said the Indian equity market, have been volatile in the recent months and that has some impact on changing sentiments.

Referring to the current turbulence in the market and also a possible unwinding of macro imbalances, Dr Reddy said, ''India plays a stabilising role with a modest current account deficit in most of the recent years, at around one per cent of GDP, and a market determined exchange rate. India has not been contributing to the global macro economic imbalances, though it has a stake in how the issues get resolved in the near future. "

He also said that with foreign exchange reserves of over $300 billion, India was interested in the debate on government-owned investment funds, Sovereign Wealth Funds (SWFs) as India had been receiving lot of investment in form them.

(See full text of India : The Global Partner)