The US Federal Reserve’s decision to taper its bond-buying programme by another $10 billion to $65 billion a month, beginning in February, was on expected lines and should not in any way surprise or affect the Indian markets.

There should be no undue concern over external factors and the Indian economy is better prepared for the consequences, if any, of the taper, the Finance Ministry said in a statement on Thursday.

“We have added to our foreign exchange reserves which stand at $295 billion. FDI and FII inflows continue to be robust, liquidity is comfortable, stronger regulations have been put in place in the capital markets, the investment cycle appears to have turned positive, credit demand from key sectors is strong, and WPI inflation has moderated,” the statement added.

'No undue concern over external factors'

The current account deficit, which was earlier estimated at $70 billion, is now expected to be below $50 billion in 2013-14. Therefore, there should be no undue concern over external factors.

However, both the Government and the Reserve Bank of India will continue to remain vigilant and will take whatever steps are necessary to ensure that there is stability in the financial markets, the statement added.

The Finance Ministry statement also noted that $65 billion is not a small sum and will continue to infuse a large amount of liquidity into the world markets.

No sequential taper

The Federal Reserve has not announced a sequential taper and has made it clear that “asset purchases are not on a pre-set course” and that they will take “further measured steps at future meetings''.

The US Fed has also made it clear that the results of the decision will be a “sizeable and still-increasing holdings of longer-term securities”.

The Federal Reserve has also “reaffirmed its expectations that the current exceptionally low target range for the federal funds rate of 0 to ¼ per cent will be appropriate at least as long as the unemployment rate remains above 6½ per cent”.

(This article was published on January 30, 2014)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.