US tapering won't have any big impact on India: FM
New Delhi: Finance Minister P Chidambaram on Thursday asserted that India is better prepared to deal with the impact of US stimulus withdrawal and said its consequences will not be large and more steps will be taken, if needed.
"We are better prepared than in May 2013 to deal with consequences, if any, of the US Fed 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.
The Minister was reacting to the US Federal Reserve's announcement yesterday on reduction of monthly bond purchase to USD 75 billion from USD 85 billion from January.
"If any other policy actions are required, we will respond. At the moment all that we have announced (are having) an impact," Chidambaram said.
India's' stock and currency markets reacted negatively to the US Fed's announcement, with benchmark index BSE Sensex falling by about 151 points and rupee slipping to 62.25 a dollar intra-day, down by 16 paisa from its previous close.
Chidambaram said the government is of the view that markets have already factored in the US Federal Reserve's decisions and "therefore is not likely to be surprised by these moderate changes".
The Finance Minister spoke to Reserve Bank Governor Raghuram Rajan in the morning and discussed about the likely impact of US tapering on India.
Chidambaram also said 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 stabilise rupee exchange rate.
"We have to wait to see what they (US) do with the interest rates. Fed says interest rates will continue to be kept low," he said.
Meanwhile, a United Nations report said that emerging markets should be prepared to deal with the impact of US Federal Reserve's quantitative easing programme.
Shamshad Akhtar, UN's Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs, said capital flows declined for many developing countries and associated volatility generated macroeconomic complications.
Volatility of flows, particularly with regard to the US Fed Reserve's tapering of the quantitative easing programme, had strong consequences, she added.
"The potential for substantial downside risks of the premature tapering of quantitative easing could impact global growth. Emerging markets should be prepared to deal with the impact of global outflows as quantitative easing was (being) tightened," she said.
As regards the rupee, Chidambaram 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."
The (US) cut in bond purchases is "a mild reduction and the US Federal Reserve has not announced any sequential reduction", 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 Federal Reserve had first in May announced that it would taper bond purchases, sending the markets world over in a tizzy. However, later it postponed the decision.