Asserting that India’s economic prospects are solid in the medium-term, Chief Economic Advisor Raghuram Rajan today said that markets are overshooting as they tend to in such times.

He was reacting to the sharp fall in Indian equities and local currency following the US Federal Reserve announcement on likely tapering in bond purchases later this year.

Indian rupee hit a new low of Rs 59.90 against the US dollar before cooling down by around 30 paise. The bond market also saw some sell-off with trading having to be halted for some time. Trading later resumed.

Rajan highlighted that India was not short of actions or tools if and when need arises. “We have a range of instruments to call on. Iam not going to say upfront what will be used.’’

The Indian regulators are closely watching the situation, he added.

He also said that tapering off bond-buying programme does not mean US will unload bonds in the market.

Rajan said it was business as usual for the Finance Ministry and that a meeting is planned for later in the day to discuss the competitiveness issue of Indian capital markets.

Asked if there was an intervention in the forex market by the RBI, Rajan said this fell in the domain of the central bank and not flagged in public.

srivats.kr@thehindu.co.in

(This article was published on June 20, 2013)
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