NEW DELHI: India is better prepared than in May to deal with any consequences of the US Federal Reserve's move to wind down its economic stimulus, finance minister P Chidambaram said on Thursday as he moved to calm jittery markets.
The comments from the FM followed the US Fed's decision to trim its bond purchase programme by $10 billion to $75 billion per month, citing improvement in the US economy. "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.
Tapering fears and a widening of the current account deficit had sent ripples across the country's financial markets earlier in the year and the rupee weakened sharply against the US dollar. The Reserve Bank of India and the government announced a series of measures to stabilize the currency and restore calm in the financial markets.
RBI has removed some of the stringent provisions it had put in place to tame the currency volatility and has now trained its guns on anchoring inflation, which is seen as a huge policy headache.
Chidambaram spoke to RBI Governor Raghuram Rajan and discussed the tapering of the bond purchase plan. "This is a mild reduction, and the US Federal Reserve has not announced any sequential reduction. The statement also says that the US Federal Reserve will "continue its purchases of treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labour market has improved substantially in a context of price stability," Chidambaram said.
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