Base less on major impact from new Fed tapering talks

Washington DC, 23 March-2014(PTI): The US Federal Reserve’s latest hint at early ending of the monthly bond repurchases and that interest rates could start to rise from early 2015, is unlikely to have a major impact on India, according to analysts.

Base less on major impact from new Fed tapering talks

Organization of the Federal Reserve System
Organization of the Federal Reserve System (Photo credit: Wikipedia)

The Federal Reserve last week also announced it would reduce its bond-buying programme to $55 billion from $65 billion every month.

“India, in our view, is in a much better position to deal with this scenario now,” Deutsche Bank said in a report.

“Policy actions have reduced the economy’s external account deficits and reliance of short-term external flows, fiscal consolidation has continued, and inflation respite is palpable,” the report said.

Domestic rating agency Care Ratings also said it does not see any major impact.

“The domestic economy is influenced majorly by local factors as opposed to external. Hence, it is expected to remain largely unaffected by the ongoing tapering programme of the Fed,” Care said.

Both the forex and the stock markets did not show any knee-jerk reaction following the Fed announcement. In fact, two out of the three trading sessions since the announcement, the markets and the rupee gained.

The report further said the financial markets have rallied considerably in anticipation of an economic reform friendly election outcome, foreign investor interest has surged, the rupee has been remarkably strong (rose close to 12 per cent from the August depth of 68.85), and latest data suggest an economic recovery is in the making.

Deutsche Bank, however, said it is not going to get carried away by the current wave of optimism.

“Our optimism rests instead on the fact that tough measures, such as fuel price hikes, monetary and fiscal tightening and FDI liberalisation have been taken over the past 18 months that will hold India on strong footing regardless of the election outcome,” the report said.