Don't dance to China, Japan tunes: FM tells investors - Business Standard

As stock markets tumbled today on worries that US federal reserve may cut its monetary stimulus, Finance Minister P Chidambaram today tried to soothe the investors nerves and asked them to read the central bank governor Ben Bernanke's statement and India's macro economic parameters correctly. He also asked investors not to link specific economic parameters in Japan and China to the Indian economy, as low purchasing managers index number for Chinese manufacturing also contributed to nervous selling in stock markets. "I think someone either misunderstood or misinterpreted the (Bernanke's) statement. If we read the statement carefully, he has clearly indicated that he will continue with quantitative easing in the foreseeable future at about $85 billion a month or so", Chidambaram told reporters after nervous selling in Indian stock markets. The Minister said that quantitative easing is continuing in Japan and Europe and there have been no change whatsoever and the flows into India during May have been extremely copious. Foreign institutional investors (FIIs) net invested $5.36 billion in stock markets till yesterday in May this year, against $11.87 billion in the corresponding period of the previous year. "I am looking forward to June and the second quarter with much greater confidence," Chidambaram said. Later talking to reporters, Chief Economic Advisor Raghuram Rajan said: "I think Federal Reserve said yesterday there is no intent to end it (quantitative easing) early. My reading of (Bernanke's) statement is that they are going to continue. In that sense we will have to deal with consequences of quantitative easing when it comes." Bernanke had said yesterday that the Federal Reserve's monetary stimulus is helping the U.S. economy recover but the central bank needs to see further signs of traction before taking its foot off the gas pedal. A decision to scale back the $85 billion in bonds the Fed is buying each month could come at one of the central bank's "next few meetings" if the economy looked set to maintain momentum, Bernanke had told Congress. Chidambaram asked investors to read the situation correctly and not be unduly influenced by external developments. "There was no need for any nervousness." He said the economic situation in India has been improving with decline in wholesale and retail inflation. "...Agriculture and labour-based inflation have come down, core inflation has come down, WPI headline inflation is below 5%, CPI based inflation is coming down, inflows are copious and someone from the media told me that he is seeing more advertisement revenues in the last two weeks", the Minister said.      Admitting that certain numbers coming out of China were disappointing and also the quantitative easing programme in Japan could run into problems, Chidambaram said, "these are factors that are peculiar to the China market and the Japan market (and) they have no relevance at all to the situation in India." HSBC purchasing managers' index (PMI) fell seven month-low of 49.6 points in May against 50.4 in the previous month. A reading below 50 points means contraction. So, basically Chinese manufacturing output contracted in May. These were advance estimates as the month of May is yet to be over. The disappointing number of Chinese PMI also spooked markets in Japan as its benchmark Nikkei plunged 7.3% today. The benchmark equity index Sensex declined 387.91 points, while Nifty fell 127.45 points. The rupee also declined to 55.59 against the dollar on sustained dollar demand and strengthening of the US currency overseas. Rajan said,"we are not the worst but we are also not the best either in terms of depreciation. We are watching the rupee, but I won't say it is out of sync with what is happening in other countries."      Look at all other currencies, the Euro has also depreciated against the dollar. Actually Japanese yen has done more than the rupee, he added.      Rajan said the Reserve Bank of India (RBI) takes decision on market intervention with regard to rupee movement.      "I think in terms of decision how much to buy, those decisions RBI takes...I think a stable ruppee is something that is justified," he said. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFgfoPmKHDdxN5z59P_kD50GzqSBw&url=http://www.business-standard.com/article/economy-policy/don-t-dance-to-china-japan-tunes-fm-tells-investors-113052300783_1.html

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