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India Central Bank says prepared to meet any volatility
January 29, 2014, 11:10 am

The Indian Central Bank on Tuesday again surprised the markets and raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for corporates [AP]

The Indian Central Bank on Tuesday again surprised the markets and raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for corporates [AP]

Indian Central Bank Governor Raghuram Rajan said on Wednesday in New Delhi that the decision to hike repo rate by 0.25 per cent was not to ward off any possible contagion on the domestic financial markets from troubles in some of the emerging market currencies, but to bring down inflation.

Explaining the reason for the recent volatility in the domestic market, Rajan said the sell-off was due to outflows from short-term funds.

“We believe that as far as we are concerned there is some build-up of short-term flows in January and some of them are existing,” he said.

He said the current sell-off is temporary in nature and the country is well prepared to meet any kind of volatility.

“We don’t think this is a longer-term situation, unlike we saw in July and August (last). We are much better prepared this time, and to the extent it happens, I am not overly worried.”

The rupee slid 20 per cent last year to a record low in August.

On a question over the Turkish central bank hiking interest rates, Rajan said, “Turkey-like policy action is hypothetical, I won’t venture (out) there.”

Rajan also said he would have liked to see a stronger reduction in core inflation, which stayed steady in the past few months.

“I think for some time we have been saying very clearly that we are focused on preserving the value of the rupee in a domestic context by preserving it in the international context,” Rajan said during the customary post-policy conference call with analysts.

“Preserving the rupee in the domestic context means bringing inflation under control. So, once we do that, we believe that investor confidence naturally follows and so it (rate hike) was a decision that would have been taken whether or not there was financial market turmoil in the last few days,” Rajan explained.

Rajan on Tuesday again surprised the markets and raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for corporates.

 

Source: Agencies

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