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India's central bank governor told investors Wednesday not to get into a "tizzy" as he dismissed worries that the nation's financial markets could be badly hit by a rollback of massive US monetary stimulus.
The country's finances are in much better shape to deal with a paring of stimulus by the US Federal Reserve than in May when talk of such a move first surfaced and sent the rupee to a record low and depressed shares, Raghuram Rajan said.
There has been "significant progress" in curbing India's current account deficit -- the broadest measures of trade -- which hit a record high last year and was a big drag on the rupee, said Rajan, who took office two months ago.
"There is no fundamental reason for volatility in value of the rupee," he said at a televised press conference. "It makes sense to take a deep breath and examine the (economic) fundamentals. I hope you all will do that."
Rajan, who is far more open with the media than his tight-lipped predecessors, said he was "particularly happy" about a 13.5-percent-rise in the dollar value of exports, a 14.5-percent fall in imports and a dramatic 48-percent dive in the trade deficit.
The pro-reform economist, who famously forecast the 2008 global financial crisis, predicted the current account deficit for the financial year ending next March would be $56 billion, far below last year's $88 billion.
"There has been some turmoil in the currency market in the last few days," Rajan conceded, but he urged investors not to get "into a tizzy".
The Indian currency rose nearly half a percent against the dollar following Rajan's remarks, ending the day at 63.30 rupees to the greenback -- its first gain in six days,
The rupee is still comfortably above its record low of 68.85 rupees touched in late August after investors repatriated billions of dollars from India and other emerging markets amid expectation of swift Fed tapering and US economic recovery.
Rajan's remarks came after India announced Tuesday its largest rise in foreign exchange reserves of nearly $7 billion in October to $283 billion, giving it greater firepower to support the Indian currency in the event of any financial crunch.
Speculation has been mounting in recent days that the Fed could finally go ahead with starting to curb stimulus as soon as next month following upbeat US jobs and other data.
Rajan, who has raised the bank's main borrowing rate twice since taking the helm, called consumer price inflation, which crossed 10 percent last month, "worryingly high" but added he was comforted by falling core inflation which strips out volatile items like food.
Economists said Rajan's remarks suggested another rise in the lending rate was not immediately in sight.
The rupee's weakness and inflation have curbed the bank's room to cut rates to spur India's economy which grew last year at five percent, its slowest in a decade.