Raghuram Rajan, the Governor of India’s Central Bank, the Reserve Bank of India, said on Saturday that India is well prepared to weather a new round of market volatility that awaits emerging market economies when the U.S. Fed decides to raise interest rates, Bloomberg reports.
There will be some volatility in emerging markets when the U.S. Fed hikes interest rates, however strong growth in the U.S. will benefit the global economy, Rajan said according to Reuters.
“If the Fed starts raising interest rates, as I presume they will … it will be good for the rest of the world. The rest of the world will benefit from U.S. growth,” Rajan said on the sidelines of the International Monetary Fund and World Bank fall meetings held in Washington, according to Reuters.
“It could create some volatility for the emerging markets … my hope is that after the initial volatility there will be differentiation and the financial investors would try to see where there is some macro-stability … I am not therefore overly worried about that process,” Rajan said, quoted by both Reuters and Bloomberg.
A U.S. Fed rate hike will bring currency volatility and, given the differences in dollar and euro rates, will raise a question for India: “do we go closer to the dollar, do we go close to the euro?” Rajan said, according to Reuters.
“We’ve got plenty of reserves relative to where we were last year … we’ve got inflation coming down in a substantial way” and accelerating growth, Rajan reiterated, according to Bloomberg.
“There will be some adjustments that would need to be made on that basis. It will have effects on the direction of trade somewhat,” Rajan said, according to Reuters.
India’s economy is at the “beginning phases of a recovery which I hope will strengthen over time,” Rajan said, adding that he didn’t see the Indian rupee as being overvalued at this particular point in time, according to the Reuters report.
Rajan said that the ‘glide path’ that India’s Central Bank has laid out to tackle inflation has had a wide acceptance from financial markets, according to the Reuters report.
“For now, I have what I need, which is a glide path which has … convinced the financial markets that we mean what we say,” he said, according to Reuters.
Sources: Bloomberg, Reuters
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