New Delhi: RBI governor Raghuram Rajan on Wednesday showed confidence that the central bank is fully prepared to deal with any volatility in Indian markets due to US Federal Reserve’s policy action on interest rates. He said that normalcy will be ensured.
Markets have been jittery whether US Fed will start hiking interest rates soon, which could result in outflow of funds from emerging nations.
“There could be volatility in (stock and currency) markets if Fed hikes rate... (but) normalcy will be restored in the market even if there is volatility,” Dr Rajan said after meeting finance minister Arun Jaitley. He said that India is much better prepared if Fed moves on rates.
“There could be volatility in (stock and currency) markets if Fed hikes rate... (but) normalcy will be restored in the market even if there is volatility.” — Raghuram Rajan, RBI Governor
Dr Rajan pointed out that the current account deficit is under control. The current account deficit has narrowed to 1.6 per cent of the GDP in the October-December quarter from 2 per cent a quarter earlier comforted by easing oil prices.
The meeting between Raghuram Rajan and Arun Jaitley comes amid reports that the central bank is opposed to finance ministry plans to strip the RBI of its powers to regulate government bonds. However, RBI will remain in charge of other money market instruments. This is reported to be done to deepen bond markets in India and increase participation of retail investors.
The Fed has been signalling for months that an increase in the benchmark federal funds rate from near zero, where it has been stuck for nearly a decade of crisis and recovery, could come as early as mid-year. Investors will be looking forward to the FOMC meeting on Wednesday.
