To deal with excessive volatility after the election results, the Reserve Bank of India (RBI) has discussed a contingency plan with the finance ministry.
"The RBI has discussed a contingency plan with the finance ministry to deal with excessive volatility after the election results," RBI governor Raghuram Rajan said here on Thursday.
He said the RBI had discussed its plan with the finance minister and the stock market regulator, Securities and Exchanges Board of India.
Rajan, who was here to attend an RBI board meeting, told the media that based on the assessment of the election result, there might be market volatility.
"In anticipation of the results, the markets had rallied in recent weeks and were very buoyant; there may or may not be market volatility," he said, adding, "The RBI will also be ready to deal with any volatility in the rupee."
To a query that in case of a hung Parliament, there might be volatility in markets and rupee was expected to crash, Rajan said the RBI was keeping an eye on the situation and would push liquidity in case such a situation arose.
Replying to a question about the challenges before the new government, Rajan said the it would have to deal with four macro-economic challenges -- growth, inflation, fiscal deficit and current account deficit.
He said the RBI had been working with the incumbent government and would work with the new one to meet all challenges, especially to bring down the consumer price index (CPI) inflation rate below 8% in January 2015 and below 6% till the end of next year as per the accepted recommendation of the Urjit Patel Committee.
"We are comfortable that the current environment will allow it to meet a consumer inflation target of 8% by the end of the year," said Rajan.
The Patel committee had recommended a monetary policy framework to bring down the CPI from 10% to 8% by January 2015.
Further, expressing concern over the 10% non-performing asset in the banking sector, he said it was large and a framework would be developed to address it.
Answering a query, he said the central bank had no role to bring back the black money. "Bringing back black money is the function of the government and its revenue department," Rajan said, adding, "The RBI can help in detecting and tracking large foreign exchange transactions."
Before the media interaction, the RBI Board met to undertake a review of the currency department, monetary policy, internal debt, GDP, current account deficit and other issues.