More ‘Tantrums’ Likely as Fed Tightens, India’s Rajan Says

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Indian central bank Governor Raghuram Rajan warned of more volatility in global financial markets on par with the so-called “taper tantrum” in 2013 that sent the rupee in a tailspin.

“With the back-to-back quantitative easing stimulus programs by other major central banks, alongside possible tightening by Fed, what we have seen might be only one of a series of ‘tantrums’ that the global financial markets are likely to witness,” Rajan wrote in a forward to the Financial Stability Report published by the Reserve Bank of India.

Rajan, a former International Monetary Fund chief economist, has been one of the most vocal critics of unprecedented monetary stimulus policies deployed by developed economies. He’s questioned their success, said they pose risks to sustainable global growth and deplored the lack of coordination with developing counterparts.

Central banks in the U.S., Europe and Japan have tried to spur growth by holding interest rates near zero for years, and through massive asset purchases aimed at holding down longer-term borrowing costs.

The U.S. Federal Reserve last week signaled that it’s on track to raise interest rates this year for the first time since 2006, though subsequent increases are likely to be more gradual than anticipated earlier.

Rajan said India is better prepared to weather the volatility a U.S. move may trigger than in mid-2013, when the Fed’s first signal that it might scale back bond buying sent the rupee to a record low.

‘Additional Buffers’

“A combination of global factors and concerted domestic policy decisions have helped, to a considerable extent, in improving the macroeconomic fundamentals of our economy as also in building additional buffers against future uncertainties,” Rajan wrote in the report on Thursday.

The buffers would also help India overcome any volatility that would be caused by Greece’s failure to reach a deal with its creditors, Rajan said in Stockholm on Wednesday.

He took over shortly after the so-called taper tantrum and has since built up record foreign-currency reserves of $354 billion to help defend the rupee. The government also reined in the current-account deficit.

Still, overseas investors became net sellers of Indian bonds last month for the first time since April 2014. The rupee has strengthened 0.2 percent in the past week, the best performance among Asia’s most widely traded currencies, according to data compiled by Bloomberg.

(An earlier version of this story was corrected to say the report is released twice a year.)

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