NEW DELHI: India’s’ stock and currency markets reacted negatively to the US Fed’s announcement to reduce bond purchases, even as Finance Minister P Chidambaram tried to calm the sentiments by assuring that government could take more steps to deal with emerging situation.
“If any other policy actions are required, we will respond. At the moment all that we have announced (are having) impact,” he said after the US Federal Reserve announced that it would reduce the monthly bond purchases to USD 75 billion from the existing level of USD 85 billion from January.
Following the last night announcement by the US Fed, benchmark sensex BSE fell by about 140 points while the rupee slipped to 62.23 a dollar in the afternoon trade.
Chidambaram said the government is of the view that the markets had already factored in the US Federal Reserve’s decisions and “therefore is not likely to be surprised by these moderate changes”.
The Minister, who spoke to Reserve Bank Governor Raghuram Rajan in the morning about the impact of US tapering, said “we are better prepared than in May 2013 to deal with consequences, if any, of the US Federal Reserve’s decisions.
“I think the consequence should not be large. Even if there are some consequences then I think we are better prepared,” he said, adding, India has increased the quantum of bilateral currency swap arrangement with Japan from USD 15 billion to USD 50 billion, a move which will help in stabilizing the rupee exchange rate.
Chidambaram further said: “We have to wait to see what they (US) do with the interest rates. Fed says interest rates will continue to be kept low”. . As regards the rupee, the Minister said “we don’t look rupee – dollar rate every hour. We look at it over a period of time. Over a period of time, rupee was stable and we expect it to remain stable”.
According to Chidambaram, the (US) cut in bond purchases is “a mild reduction and the US Federal Reserve has not announced any sequential reduction”.
The US Federal Reserve, the Minister said, will “continue its purchases of treasury and agency mortgaged-backed securities and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in the context of price stability”.
The US Federal Reserve had first in May announced it will taper bond purchases, sending the markets world over in a tizzy. However, later it postponed the decision.–PTI
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