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US Fed tapering unlikely to have any big impact on India economy: Finance Minister

20 Dec 2013 Evaluate

As the US Federal Reserve planned to reduce monthly bond purchases by $10 billion each month from the existing level of $85 billion from January, Finance Minister P Chidambaram asserted that India is better prepared to deal with the impact of US stimulus withdrawal adding that consequences will not be large and more steps will be taken, if needed.

Referring to the adverse impact of the US Fed taper programme on Indian stock markets and currency markets, Chidambaram added that the government is of the view that markets have already factored in the US Federal Reserve's decisions, therefore is not likely to be surprised by these moderate changes. The Finance minister further stressed that India has increased the quantum of bilateral currency swap arrangement with Japan from $15 billion to $50 billion, a move which will help stabilise rupee exchange rate.  Indian authority assessed the exchange rate over the period of time and in near future rupee value is expected to remain stable as US Fed announced to taper its quantitative easing through mild reduction rather than any sequential reduction. Finance Minister has also communicated with Reserve Bank Governor Raghuram Rajan and discussed about the likely impact of US tapering on India. 

Recently, the US Fed Reserve noted that it will continue its purchases of treasury and agency mortgaged-backed securities from January and employ other policy tools as appropriate, until the outlook for the labour market will be improved substantially in the context of price stability. The recently released UN World Economic report highlighted that emerging markets should be well prepared to deal with the impact of US Federal Reserve's taper programme as it would impact the capital inflow into these countries.

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