RBI Says U.S. Fed's Decision To Delay Taper Helped Rupee

Tuesday, October 29, 2013
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Mumbai: The Reserve Bank said the U.S. Federal Reserve's decision to delay the unwinding of its monthly $85-billion of asset repurchase programme has brought in some stability to the rupee.

"The Fed's decision on September 18 to continue with the monthly quantum of asset purchase, stating that they will await more evidence of an enduring economic recovery before adjusting their pace, brought significant improvement in market sentiment," the RBI said in the macroeconomic and monetary development report released on the eve of second quarter monetary policy review.

Concerns over early withdrawal of easy monetary policy by the U.S. Fed had made markets jittery with foreign institutional investors pulling away money from all emerging markets and developing economies (EMDEs).

"Since the Fed's announcement, EMDEs' equity markets and currencies have rallied," the report said.

The RBI, however did not put a number either on the outflow side or inflow side.

The total foreign investment equities have reached $15.6 billion in 2013 so far, according to the latest data available with market regulator Sebi. FII have also pulled out over $16 billion from the debt market.

The RBI report said tracking global developments and significant policy actions by the government and the Reserve Bank, domestic stock markets turned around in September after the slump in the preceding two months.

"The rupee also strengthened in response to improved trade flows and return of equity inflows," the report said.

The local currency which dropped to a historic low of Rs.68.85 against the U.S. currency, corrected nearly 13 percent, following the Fed announcement.

"While markets have got a temporary breather, near-term uncertainties remain and steps need to be taken to build buffers to manage contingent risks," the report said.

The report also said the currency derivative activity also declined in the second quarter because of the measures announced by the RBI and the market regulator Securities and Exchange Board of India (Sebi) to contain the rupee volatility.

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Source: PTI
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