RBI governor Raghuram Rajan expects volatility in the Indian financial market if US Federal Reserve raises interest rate. The governor, however, said normalcy would return as the country’s foreign exchange reserves are high and current account deficit is under control.
India is well prepared to deal with possible foreign fund outflows, Rajan said after meeting finance minister Arun Jaitley in New Delhi. He, however, said there might not be certainty on timing of Fed rate action on Wednesday. Nonetheless, India would take cues from Fed’s policy statement, which is expected after the conclusion of two-day policy meeting of US Federal Reserve on Wednesday, he added.
IMF managing director Christine Lagarde on Tuesday had cautioned emerging markets, including India, to prepare for greater volatility in the financial markets if Fed hikes rates, to avoid repetition of 2013 ‘taper tantrum’.
In 2013, EM economies saw a massive capital outflow after Fed indicated it may soon wind up its quantitative easing. The Indian rupee fell to an all-time low of 68.85/$ in August 2013.