Bangalore: The Finance Ministry said that the U.S. Federal Reserve's decision to trim its monetary stimulus will not affect Indian markets and steps will be taken by the RBI and the government to ensure financial stability.
"Both the government of India and the Reserve Bank of India will continue to remain vigilant and will take necessary steps to ensure that there is stability in the financial markets," the Finance Ministry has assured.
The U.S. Federal Reserve on Wednesday decided to cut its bond purchases by another 10 billion dollars. It has now decided to purchase 65 billion dollars per month of mortgage-backed securities and longer-term treasury securities as against the75 billion dollars per month earlier. "This decision was expected and should not in anyway surprise or affect the Indian markets. However, it may be noted that 65 billion dollars is not a small sum and will continue to infuse a large amount of liquidity into the world markets," the FM statement added.
The announcement of the U.S. Federal Reserve sent markets to a tizzy with the BSE Sensex plunging over 225 points in early trade and the rupee losing 33 paisa to trade at 62.75 a dollar. However, the Finance Ministry reaffirmed that the Indian economy is better prepared for the consequences, if any, of the taper.
Economic affairs secretary Arvind Mayaram has assured that the government will remain vigilant on the evolving situation and there is no reason to worry over the economy. "The Current Account Deficit (CAD) will be lower than 2.5 per cent of GDP and the rupee will remain range-bound," he said.
Meanwhile, the Finance Ministry further said that the FDI and FII inflows into the country remain strong and there has been an accretion to the foreign exchange reserve which stood at $295 billion. The CAD is now expected to be below 50 billion dollar in 2013-14. "Therefore, there should be no undue concern over external factors," the Ministry statement has said. The CAD was at a record high of 88.2 billion dollar or 4.8 per cent of GDP last fiscal.
The statement further said that the Federal Reserve has not announced a sequential taper and has made it clear that "asset purchases are not on a preset course" and that they will take "further measured steps at future meetings."
The U.S. Federal Reserve has also made it clear that the result of the decision will be a "sizeable and still-increasing holdings of longer-term securities". Earlier in May, it had announced it will taper bond purchases, sending markets world over into a turmoil with the rupee hitting record lows. However, later it postponed the decision.
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