"The general reaction here (in Singapore) is that we don't hear anything from government on the real performance front which will improve the supply side picture and that will eventually improve the exports and that will improve the current account deficit," S Narayan, Former Finance Secretary said.
The mayhem on Mint Street and carnage on equity markets forced the Finance Minister P Chidambaram to clear the air of fear in the economy. In a press conference held today to calm nerves Chidambaram assured that government will take measure to further reduce CAD and that it had no intention to control capital flows.
Agam Gupta MD & Head FXRC Standard Chartered said that FM's affirmation and the reaffirmations will shore up sentiments further. "What he is trying to allay the fears of the market that there will be no capital control that's one concern which the market had. Apart from that he is mentioning that all the measures that they have announced are going to play out in the medium term and they do expect the capital account deficit to be even less than USD 70 billion," Gupta said.
Rupee continued its waterslide today and had fresh record low of 65.56 against dollar. However, many experts believe that rupee may not depreciate any further. "Definitely, 66 looks to be the top for the moment, technically as well as fundamentally. I think as for now after seeing a aggressive intervention for the last couple of days also from the central bank we think that 66 for now looks to be the topish level," Ashutosh Raina of HDFC Bank said.
Rahul Bajoria, Regional Economist at Barclays Capital said although the finance minister's comments were good in the short-term it may not have any significant impact on the markets.
"I think as far as the global headwinds for the currency markets or even the fixed income markets are concerned that is here to stay for a while and from that perspective there is very little the central bank or the Finance Ministry can do in sort of turning the tide from the risks that are coming in as far as the tapering of the quantitative easing (QE) is concerned," Bajoria said.
He appreciated FM's focus on revival of mining sector. In his address FM stressed that there was a need to get iron ore mining back on its feet. Narayan
Although FM tried to address market fears Narayan believes that he could have shed more light on likely impact of tapering of quantitative easing.
"He has used the words we have to brace ourselves for the Fed decision. Bracing ourselves is a word which he is using that when he is expecting something worse to happen than what has already happened; but he has not given any clear picture of what are the steps that he is going to take if the Fed action results in a pushdown in all these markets as well as in the currencies," Narayan added.
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