Sunday, September 8, 2013

Raghuram Rajan may discuss stability issues at Basel Meet

MUMBAI: Raghuram Rajan will meet global central bank chiefs in Basel, Switzerland on Monday, for the first time as the Reserve Bank of India governor, and probably discuss global financial stability and issues related to banking regulation.

Rajan, who took charge as RBI governor last week, is in Switzerland for the bimonthly meeting of governors organized by the Bank for International Settlements, which suggests rules and regulations for the banking industry at the global level. The latest meeting of the central bank chiefs assumes significance since it comes on the heels of the G-20 meet in St Petersburg where leaders of emerging nations sought gradual withdrawal of stimulus by the US Federal Reserve.

\"Bimonthly meetings of governors and other senior officials of BIS member central banks to discuss monetary and financial matters are instrumental in pursuing this (monetary and financial stability) goal,\" BIS says on its website.

Emerging markets across the globe are in panic as foreign investors pull out funds with the cost of borrowing making it unattractive to invest in countries such as India and Indonesia. With the 10-year US treasury yielding close to 3 per cent, almost double its all-time low a few months ago, investment in emerging markets securities are not attractive any more.

The US Federal Reserve, which has been buying $85 billion of bonds every month, may reduce it to about $60 billion since the US economy is showing signs of recovery and asset prices are climbing.

India is among the worst hit due to the pullout by international investors, with the Indian currency plumbing all-time lows amid fears of a rating downgrade to junk status. The rupee plunged to a historic low of 68.84 to the US dollar on August 28.

Foreign institutional investors pulled out $8.9 billion from domestic debt securities in the three months to August 31, data from the market regulator shows. They also sold $3.7 billion of stocks. But the currency and stocks have since recovered after Rajan promised to repair the broken banking system, and moved quickly to shore up the Indian currency.

Overseas borrowing limit for banks have been doubled and he has promised to cover the exchange rate risk for US dollar funds raised from non-resident Indians. Both these measures could arithmetically bring in at least $30 billion in the next few months.
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