The Reserve Bank of India (RBI) is keeping a close watch on the US Federal Reserve, which is expected to come out with a statement on Wednesday night on how soon it plans to tighten monetary policy and raise interest rates.
RBI governor Raghuram Rajan on Wednesday said that India was prepared for the consequences and the required cues would be taken from the US Fed policy statement.
Rajan also met finance minister Arun Jaitley ahead of the customary post budget board meeting scheduled on March 22.
Rajan also said that though the emerging markets could witness volatility but India, which has sufficient foreign exchange reserves, was prepared to face the situation.
He added that the country’s current account deficit — a broad measure of dollar inflows and outflows — was under control.
Christine Lagarde, chief of International Monetary Fund (IMF) said that India was well prepared to deal with a rate hike by the US Fed.
An interest rate hike in the US could prompt foreign funds to move out of emerging markets such as India.
The resultant dollar outflow could weaken the rupee.
Besides, a falling rupee would have also made the RBI hesitant to cut rates to maintain India’s attractiveness as a “high-return” market among foreign funds.