Don’t worry, says Raghuram Rajan

Reserve Bank governor Raghuram Rajan on Friday promised to provide liquidity and correct any disorderly market behaviour following UK’s vote to walk out of the European Union, saying that after initial investor worries over Brexit, funds should return to India.

“The Indian economy has good fundamentals, low short-term external debt, and sizeable foreign reserves. These should stand the country in good stead in the days to come. Reserve Bank is continuously maintaining a close vigil on the market developments and will take all necessary steps, including liquidity support, to ensure orderly conditions in financial markets,” Dr Rajan said.

“If you want to be gloomy,” Dr Rajan said, “you can add a whole string of bad events, ranging from what you call the fissiparious tendencies in Europe, a potential for recession in UK, shutting down of trade or more constraints on trade, resulting in more pain for export-oriented nations and consequently a dow-nturn in world economy. My sense is that the sequence of events may not play out. I am hopeful, it is early days, we should not overfocus.”

Asked about impact on outflows, he said that India should not see any major foreign selling given its better fundamentals relative to other economies.