India better prepared to deal with US tapering: P Chidambaram

Attempting to soothe the stock markets, Finance Minister P Chidambaram today said India is better prepared to deal with the situation arising out of a cut in US bond purchases and markets have already factored in the impact of such a move.

"The government is of the view that the markets had already factored in the US Federal Reserve’s decisions and therefore is not likely to be surprised by these moderate changes," he said in a statement.

The Minister, who spoke to Reserve Bank Governor Raghuram Rajan in the morning about the impact of US tapering, said "we are better prepared than in May 2013 to deal with consequences, if any, of the US Federal Reserve’s decisions.

The BSE Sensex plunged by about 190 points in the early trade, while the rupee weakened to 62.44 to a dollar following the US Fed announcement to reduce the quantum of bond purchases.

The US Federal Reserve last night announced that it would reduce the monthly bond purchases to USD 75 billion from the existing level of USD 85 billion from January.

Chidambaram said: "This is a mild reduction and the US Federal Reserve has not announced any sequential reduction".

The US Federal Reserve, the Minister said, will "continue its purchases of treasury and agency mortgaged-backed securities and employ its other policy tools as appropriate, until the outlook for the labour market has improved substantially in the context of price stability".

The US Federal Reserve had first in May announced it will taper bond purchases, sending the markets world over in a tizzy. However, later it postponed the decision.