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Reacting to the US Fed’s decision to delay tapering, Rajan said it is just a postponement.
“We are prepared for tapering. We have announced various measures and they will play out, and that to some extent offset any potential for outflows down the lines.”
Global markets, especially those in emerging economies, were critical of comments by the Fed’s Chairman Ben Bernanke in the past six months that Washington would end quantitative easing in mid-2014.
“We are fairly confident that we can finance this year’s CAD without a substantial draw down in the reserves,” Rajan said in New Delhi.
“The Finance Minister’s math, which the RBI collaborated, suggests CAD could come down to USD 70 billion or even below that. The financial measures we put in place should rise more than that amount of money,” Rajan said.
Indian Finance Minister P. Chidambaram has set a target of 3.7 per cent CAD, or $70 billion, this fiscal.
CAD, a measure of the flow of goods, services and money across national borders, stood at a historic high of 4.8 per cent, or $88 billion, of the GDP last fiscal.
Basing his optimism to the increased dollar inflows, Rajan said, “I am glad to say banks have started bringing in money. Till yesterday, we had received $466 million through FCNR-B and $917 million through swap facility to a total of nearly $1.4 billion.”
A new Deutsche Bank report says foreign institutional investors (FIIs) have recouped around 25 per cent of the capital flight seen over the June-August period, when India witnessed a sharp bout of FII outflows of $4 billion.
Rajan has unveiled a slew of rupee-supporting measures since taking charge on September 4.
In his first monetary policy review, the Governor unexpectedly increased the repo rate by 25 basis points to 7.50 per cent.
He also reduced the marginal standing facility rate by 0.75 per cent to 9.5 per cent, thereby lowering the cost for funding for banks.
The central bank also reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 per cent effective from the fortnight beginning September 21.
On September 4, Rajan announced a string of steps such as offering a special window to swap foreign currency non-resident (FCNR) deposits and enhancing limits for exporters to re-book cancelled forward exchange contracts.
The measures helped the rupee rally 9 per cent versus dollar from 67.63 (September 3) to 61.77 (September 19).