The Raghuram Rajan effect: Stocks rally, bond yields crash

Dec 18 2013, 22:25 IST
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"Your Volcker, Yellen etc... how about a Raghuram Rajan (effect)?" RBI Guv quipped. PTI
SummaryRBI Guv Raghuram Rajan moved to shed his hawkish inflation stance and surprised the markets.

points to end at 20,859.86. The 10-year government bond yield fell 13 basis points to end at 8.78 per cent as against 8.91 per cent during the opening trade.

Rajan said he expects stronger growth in the second half of this financial year, aided by higher expansion in agriculture, exports and a revival in stalled projects.

The Governor, who took charge in early September, said he would stick with the earlier 5 per cent growth projection for the full year, with minor fluctuations.

Raghuram Rajan exuded confidence in the government's ability to meet the fiscal deficit target of 4.8 per cent of GDP. A cut in government spending, increase in disinvestment and greater revenue from state-owned companies will help meet the target.

Expressing happiness over the way the rupee is faring, Rajan said, "We are happy with the reduction in volatility and that was our aim right through.

"We also wanted to reduce the unhinged expectations on the rupee. There was a point where analysts were competing with each other to see how weak they could proclaim the rupee to be at the end of the year... We hope that unhinging of expectations has come down."

Talking about the external environment, Raghuram Rajan said it is not something to be complacent about and the RBI is fully prepared to deal with any volatility that may come once the US Fed starts tapering its bond-buying programme.

"We are certainly focused on the external environment. We are better focused to withstand the volatility stemming from tapering," he said.

The Governor said he is comfortable with the prevailing level of the current account deficit (CAD), which narrowed to 1.7 per cent of GDP in the second quarter from 4.9 per cent in the first quarter.

The Governor, however, said, "I would be much happier if we had the kind of CAD we have without significant curbs on anything, including gold."

"We should aim to have a (lower) CAD without any distortions, that is what we will be working for," Raghuram Rajan said.

Later talking to analysts, the RBI chief, however, maintained time is not ripe to lift the existing curbs on gold imports. "At this point, it will be premature to withdraw these restrictions for a variety of reasons."

Rajan said the recent rise in India's forex reserves, which stood at around USD 295 billion as of December 6, is the result of two

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