Chidambaram said markets have already factored in the impact of the taper. "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," Chidambaram said in a statement. "...I think the consequences should not be very large. Even if there are some consequences, I think we are much better prepared. We have taken a number of measures," he told reporters.
BSE sensex on Thursday closed at 20,708.62, a fall of 151.24 points or 0.73 per cent, surrendering most of the gains of the Reserve Bank of India's decision not to raise interest rates on Friday. The rupee fell 5 paisa to 62.14 versus the US dollar and the benchmark 10-year bond yield closed down 4 basis points at 8.74 per cent, lowest since December 5, after moving in a range of 8.74 per cent to 8.80 per cent.
In contrast, most global markets rallied sharply after the Fed announcement.
The US central bank decided on Wednesday to lower its monthly bond purchases by $10 billion to $75 billion from January, kickstarting the rollback of the unprecedented monetary easing it unleashed after the global financial crisis. Fed chairman Ben Bernanke said the bond purchases are likely to be reduced at a "measured" pace and fully stopped by late 2014 if economy continued to show strength.
The minister, who spoke to RBI gover nor 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.
"This is a mild reduction and the US Federal Reserve has not announced any sequential reduction," he said.
"What they announced yesterday (Wednesday) was very different from what was hinted in May and how the world understood the taper in May...We have to wait to see what they do with their interest rates. At the moment the statement states that the interest rates will continue to be very low," he said.
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 labour market has improved substantially in the context of price stability". The US Fed's unexpected announcement in May that it would taper bond purchases had sent the global financial markets in a tizzy; stocks fell and currencies weakened.
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