India not caught on back foot by US tapering: Chidambaram

Within hours of the US Federal Reserve announcing its tapering of financial stimuli, India's finance minister P Chidambaram today said India is better prepared to deal with the situation than it was six months back, and markets have already factored in the impact of the Federal Reserve' move to curtail purchase of securities by $10 billion.

"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 of India 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 Fed on Wednesday announced that it will continue to purchase securities, but at the rate of $75 billion every month as against the earlier level of $85 billion. The Indian finance ministry felt that this is a mild reduction and the Fed has not announced any sequential reduction (See: Fed to cut bond-buying by $10 bn from January, keep rate unchanged).

The ministry has also noted the part of US monetary authority' statement which said, "Federal Reserve will continue its purchases of Treasury and agency mortgage-backed securities and employ its policy tools as appropriate until the outlook for the labour market has improved substantially in a context of price stability."

The Bombay Stock Exchange Sensex plunged by about 190 points in early trade, while the rupee weakened to 62.44 to a dollar following the US Fed announcement.

Chidambaram noted that the US Federal Reserve 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 Fed had first announced in May that it would taper bond purchases, sending markets the world over into a tizzy. However, later it postponed the decision.