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The Reserve Bank of India (RBI) governor, Raghuram Rajan, expressed comfort on Wednesday about core inflation and highlighted the narrowing current account deficit (CAD) as he sought to reassure investors worried the country would be hit hard in a global market sell-off.
Most immediately, he pledged to move slowly if needed in winding down an oil window that provides dollars directly to state-run oil companies, while announcing a bond purchase of 80 billion rupees ($1.26 billion) on Monday to inject liquidity in markets. Both had been key concerns in markets.
The news briefing, announced earlier in the day, was an unprecedented departure for the traditionally cautious central bank. Since taking the helm of the Reserve Bank of India (RBI) in September, Raghuram Rajan has pledged to be more communicative and has so far been warmly welcomed by investors.
Still, Raghuram Rajan's remarks had a mixed impact on markets, sending benchmark 10-year bond prices rallying, although the rupee failed to gain much despite ending the day well above a two-month low hit earlier. Stock markets were already closed.
"It's important that the RBI clarifies interpretation of economic events and the likely direction of economic policies at times of uncertainty so that the market worries about the right things and does not get into a tizzy about the wrong ones. That is my quote today," Raghuram Rajan told reporters.
"There is no fundamental reason for volatility in value of the rupee," he also said. "At some time, it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that."
Raghuram Rajan addressed reporters after stronger-than-expected U.S. jobs data last week had sparked concerns about an early end to the Federal Reserve's stimulus, hitting the rupee and sending Indian bonds and shares tumbling, although markets remain well above the levels of the summer lows.
Some investors had started to fear a repeat of the summer, when the rupee slumped to a record low of 68.85 to the dollar, punished by worries about the country's vulnerability should foreign investors sell because of Fed tapering.
Analysts also cited some comfort from the governor's remarks on inflation given the RBI has raised interest rates by a half percentage point since September in two back-to-back actions as it fights off rising consumer prices.
Worries about yet another rate hike had gripped investors after India reported late on Tuesday consumer price inflation accelerated more than expected to 10.09 percent in