The US Federal Reserve's decision to scale down its economic stimulus programme by $10 billion should not affect the Indian markets, Finance Minister P. Chidambaram said Thursday.
"This decision was expected and should not in any way surprise or affect the Indian markets," Chidambaram said in a statement after the US Federal Reserve announced that it would trim its monthly bond purchase programme by $10 billion to $65 billion.
However, Chidambaram said "both the government of India and the Reserve Bank of India will continue to remain vigilant and will take whatever steps are necessary to ensure that there is stability in the financial markets."
The US Federal Reserve Wednesday said it would buy $65 billion in bonds per month starting in February, down from $75 billion now.
The Fed has also decided to trim its purchases of US Treasuries and mortgage bonds equally.
Chidambaram pointed out that $65 billion is not a small sum and it would continue to infuse a large amount of liquidity into the world markets.
The Federal Reserve has not announced a sequential taper and has made it clear that "asset purchases are not on a pre-set course" and that they will take "further measured steps at future meetings."
The Federal Reserve has also made it clear that the result of the decision will be a "sizeable and still-increasing holdings of longer-term securities".
The finance minister said India's economy is better prepared for the consequences, if any, of the taper.
"We have added to our foreign exchange reserves which stand at $295 billion. FDI and FII inflows continue to be robust, liquidity is comfortable, stronger regulations have been put in place in the capital markets, the investment cycle appears to have turned positive, credit demand from key sectors is strong, and WPI inflation has moderated," he said.
"The Current Account Deficit which was earlier estimated at $70 billion is now expected to be below $50 billion in 2013-14. Therefore, there should be no undue concern over external factors," Chidambaram added.
