Millennium Post

Brexit: RBI, Govt seek to soothe wracked investor nerves

Finance Minister Arun Jaitley said impact on financial markets should not last beyond a few days and vowed to steadfastly pursue growth-oriented reforms agenda including early passage of GST Bill, while RBI Governor Raghuram Rajan promised to provide liquidity and correct any disorderly market behaviour.

India has enough resilience to withstand medium to long term impact and is well prepared to deal with any volatility, they concurred. Rajan said investments should return after initial investor worries over Brexit and pledged to inject liquidity in dollars and rupees, as needed. 

The Indian economy has good fundamentals, low short-term external debt and sizeable foreign reserves, Rajan said, adding that these factors should stand the country in “good stead in the days to come”. He saw no major foreign selling as India was better placed than other economies.

In line with global markets following UK’s exit from EU, BSE Sensex tanked nearly 1,100 points before regaining some ground - still closing 605 points down at 26,397.71, while the rupee fell below the Rs 68 mark against the US dollar. Gold, considered a safe-haven investment, soared however to 26-month high in the bullion market here. Jaitley, who is on a five-day visit to China, said in Beijing that the UK vote will have transient impact on India, not lasting beyond few days. “It then settles down.” 

“Now instead of one entity (the combined European Union) we have to deal with two (EU and UK),” he said. “At the same time, for the medium-term, we will steadfastly pursue our ambitious reform agenda including early passage of the GST (goods service tax) that will help us realise our medium term growth potential of 8-9 per cent,” Jaitley added. Chief Economic Adviser Arvind Subramanian said he saw “silver lining” of a decline in oil prices and likelihood of a rate hike delay in the US due to the UK vote. 

Following market mayhem, total investor wealth, measured in terms of cumulative market value of all listed stocks, tanked nearly Rs 1.79 lakh crore. Minister of State for Finance Jayant Sinha said: “We need to brace ourselves for short-term knee-jerk global reactions. We continue to emphasise that India is an open market oriented economy. Markets will find their own level. We have to ensure that we allow markets to adjust.” Jaitley said India is well prepared to deal with short and medium term consequences of Britain exiting the European Union and has solid immediate and medium-term firewalls in form of healthy forex reserves.

Stating that the verdict of the referendum will add to the volatility in the global markets, he said all countries around the world will have to brace themselves for a period of possible turbulence while being watchful about, and alert to, its medium term impacts.

India, he said, is strongly committed to macroeconomic framework with its focus on maintaining stability. “Our macroeconomic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation,” Jaitley said. 

Rajan in huddle with central bank honchos at Basel as markets roil
RBI Governor Raghuram Rajan and heads of central banks from across the world got into a huddle on Friday in this Swiss town as Britain’s vote to exit European Union gave an early morning shock to the financial markets globally. Rajan, who has been pitching for greater coordination among central banks to deal with such situations, was expected to reiterate this point amid fears that Europe may slip into recession and many more countries may call for similar referendums posing a huge risk to recovery in world economy. 

Head of central banks from various countries get into a ‘Basel huddle’ every second month here at the headquarters of the Bank for International Settlement (BIS), popularly known as bank for central banks. The contours of this bi-monthly meeting are never made public and the discussions held there are kept top-secret, though they concern the monetary policy actions the central banks across the world need to take in the wake of emerging and foreseeable trends in the global economy.

‘Keep off competitive devaluation,’ RBI Guv advises central banks
Reserve Bank Governor Raghuram Rajan on Friday asked central banks across the globe to desist from currency depreciation to create competitive advantage in the wake of Britain’s exit from the European Union. “Currencies do help adjustment and some movement is warranted... what I have been concerned about is intervention in a big way in the currency so as to move it in a particular direction and create a competitive advantage... we as central bankers will have to get together and make sure we do not do it,” Rajan told CNBC TV18 after the UK vote to leave the EU. The Governor said the issue of competitive devaluation of currencies is one of the concerns for the past many months and he has been fairly public about it. 
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