Page 23





India says better prepared to deal with Fed tapering n Reuters India is in a much better position to deal with the impact of the US Federal Reserve’s possible move to reduce monetary stimulus that has supported inflows of cash to emerging markets, a top government official said on Wednesday. Globally, investors are awaiting the outcome of a Federal Reserve meeting on Wednesday for some clarity as to when the central bank will begin trimming its stimulus. Worries over the Fed’s possible tapering had triggered massive capital outflows this summer from emerging markets. Saddled with hefty current account and fiscal deficits, India looked the most vulnerable. The rupee went in a free-fall, losing as much as 20% against the dollar before recovering. Arvind Mayaram, India’s economic affairs secretary, reckons Asia’s third-largest economy is in a much better shape this time, thanks to the measures taken to bolster the forex reserves and control the current account deficit, to handle the fallout of any decision to reduce the stimulus. “So, all these measures taken together I believe would keep the market stable and there is not going to be a very great impact from the taper on the rupee going forward,”

he told reporters on the sidelines of a G20 conference. “I would not say no impact but I would say there would be little impact and whatever impact is there would be short-term impact on the rupee.” The policy-setting Federal Open Market Committee is expected to issue a statement on Wednesday at the meeting’s conclusion. While the Fed isn’t expected to start winding down its purchases of $85bn a month in bonds until March, recent stronger-than-expected economic data increased the odds that tapering could occur sooner. The rupee was trading at 61.86/87 against the dollar after rising to as high as 61.77, as caution prevails ahead of the Fed’s decision later in the evening. It had closed at 62.01/02 on Tuesday. Mayaram ruled out any new measures to bolster the currency, if the Fed’s decision created any volatility in the forex market. India had unveiled a slew of measures between May and September to stem capital outflows and stabilise the rupee. It also clamped down on gold imports to control the current account deficit that hit a record high 4.8% of gross domestic product (GDP) in the fiscal year that ended in March. But gold import curbs along with a rebound in merchandise exports have helped narrow

A man watches television inside his currency exchange shop in New Delhi the deficit to 1.2% in the last quarter. India is also talking with JP Morgan and others to gain entry to benchmark indexes for emerging market debt in hopes of attracting billions of dollars in investment that could act


as an insurance against any external shock. Mayaram said the government is still discussing inclusion in global bond indices and would prefer incremental change in foreign investment limit in the sovereign debt. l

Euro zone set for drawn-out battle over banking rules n Reuters Euro zone finance ministers started tense talks on Tuesday to agree the details of one of their most ambitious financial reforms yet with a scheme to close banks, a deeply divisive issue on which Germany has dug in its heels. More than five years into a financial storm that toppled banks and dragged down states from Ireland to Spain, Europe wants to seal its biggest project since the euro - a framework to police banks and tackle their problems together. As ministers gathered in Brussels, German Chancellor Angela Merkel underscored the importance of the negotiations to complete banking union - of which agreement on how to close bad banks are a key part - and said she hoped they would reach a deal before she and other EU leaders meet on Thursday. “For the acceptance of the euro on financial markets, the banking union is very important,” Merkel said. That gives ministers 36 hours to clinch agreement on an agency and fund to shut weak banks to complement European Central Bank supervision of the sector if European Union leaders are to sign off on it this week. But discussions over a banking union have already dragged on for the best part of a year and are growing ever more complex as they reach their climax. Wolfgang Schaeuble, Germany’s finance

of problem banks across the euro zone. With divisions running deep, ministers may sidestep this thorny issue so as to reach a general political agreement and stick to an ambitious timetable for the banking union project to start in 2015.

“Too cumbersome”

European Central Bank (ECB) President Mario Draghi talks to Dutch Finance Minister and Eurogroup chairman Jeroen Dijsselbloem (right) during a eurozone finance ministers meeting in Brussels REUTERS minister, sounded a downbeat note before the meeting, saying there was no consensus. “The work remains difficult,” he told reporters. “We have different opinions on several points.” The sense of urgency was highlighted by Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings of euro zone finance ministers. “We have to get a result,” he said. Olli Rehn, the European economic commissioner who is at the talks, called for everyone to redouble their efforts in order to have

“Christmas peace”. Ministers have already agreed on the first plank of banking union, making the European Central Bank supervisor of the region’s largest banks from the end of 2014. But the second pillar - an agency for winding up problem banks and a fund to pay for the clean-up - is difficult. Germany, the euro zone’s largest economy, has raised the greatest concerns about the fund, which it fears is a step towards sharing the costs

There is also a question mark over the new procedure for closing a bank. Documents circulating among diplomats and seen by Reuters show an increasingly complicated structure emerging. “The proposal on governance looks very complicated,” said Michael Noonan, finance minister for Ireland, which saw its economy almost collapse after its banking crisis. “In resolving a bank, one would want to be able to do it over a single weekend at the maximum. So anything that is too cumbersome, with various layers to it, won’t be effective.” A general agreement among the ministers is all that is needed to start negotiations with the European parliament on the legislation. Yesterday, ministers from the wider EU will join the group to discuss who will have the power to close down a laggard bank in the euro zone. On Tuesday, the talks are focusing on who pays. Under draft plans, banks will provide the cash to pay for the closure of failed lenders, giving roughly 55bn euros ($76bn) over 10 years. l

December 19, 2013  
December 19, 2013