Chidambaram discounts effects of Fed tapering monetary stimulus

India is better prepared to deal with any ill-effects of a reduction in the US Federal Reserve's monetary stimulus and the markets have already factored in the effects of any drop in inflows of investment funds, finance minister P Chidambaram said yesterday, after rhe US Fed announced a $10-billion cut in its bond-buying stimulus (See: Fed to cut bond-buying by $10 bn from January, keep rate unchanged).

''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. Besides, we are better prepared than in May 2013 to deal with the consequences, if any, of the US Federal Reserve's decisions,'' Chidambaram said.

The impact of US stimulus withdrawal, if any, will not, however, be large and the government and the Reserve Bank of India have taken measures for any eventuality, he said.

The rupee, however, fell slightly on Thursday, in the wake of the Fed's announcement that it would reduce monthly asset purchases by $10 billion beginning January 2014.

Markets are banking on a better currency reserve position and the fall in the current account deficit to reassure investors about the stability of the rupee, after the rupee hit record lows in August.

Besides this, Chidambaram said, the Reserve Bank of India and the Bank of Japan have enhanced the currency swap facility from $15 billion to $50 billion.

The agreement for this was signed on Tuesday by the Reserve Bank of India and the Bank of Japan, he said.

''Government believes that this measure will further strengthen the bilateral financial cooperation between Japan and India,'' Chidambaram said.

The rupee weakened about 0.1 per cent on Thursday, and was trading around 62.19 to the dollar, around 10.7 per cent stronger than its August low.