The Financial Stability Report (FSR) for Dec 2013 is being released once again in uncertain times. The US Federal Reserve (Fed) having announced tapering of its QE-3 has finally laid to rest uncertainties on the timing of the initiation of exit, but the pace of exit and the market reaction and adjustment to the withdrawal of liquidity will have to be watched carefully. The commencement of taper should signal a calibrated return to normal liquidity and credit conditions in the global markets and also better pricing of risk. This will mean a repricing of certain assets with consequent volatility. In India, a potential additional source of uncertainty is the coming general election. A stable new government would be positive for the economy. With confidence in the financial system still fragile, six years into the crisis, policy certainty is something investors look for in the current environment.
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