I'm not worried about Fed rate hike impact on economy: Rajan

However, the RBI Governor cautions that there will be volatility the world over

Ruling out any major disruptions in domestic market as and when the US Federal Reserve hikes its record low interest rates, RBI Governor Raghuram Rajan today said he is not worried about its impact on the Indian economy.

"We are not worried about the effects on us when the Fed acts, but we do think there will be volatility the world over," Rajan told analysts in a conference call here today.

The impact of the Fed action has already been factored in by the markets the world over as it is one of the "most awaited things in history in recent times and so nobody really reacts when it happens," Rajan said.

"Still it is prudent to just wait and see and then take action," he added.

When asked if there is need to wait until the Fed acts to increase the cap on foreign holdings in government debt, Rajan answered in the negative.

"If the Fed action is delayed beyond September, we certainly won't hold back our market reforms waiting for external developments," Rajan said.

However, he was quick to add there is a fair amount of expectation that the Fed would start increasing its near zero interest rates from September.

After the 2008 global financial crisis, that began in the US, the Fed has brought down its short-term interest rates to a low of 25 basis points even while it flooded the US and global markets with trillions of US dollars in two rounds of quantitative easing.

In the past seven years, the Fed has been linking a rate hike to better employment scenario, which of late has been normalised. Last week Fed chairperson Janet Yellen said that she would act as early as September or as late as December.

On the plan to gradually increase the foreign portfolio investors cap on holding in government debt, Rajan said "I think it's prudent to (long term money with higher holdings for foreign portfolio investors).

"Also, given the state of liquidity in the market, it doesn't cost us too much to wait. But once we get a good sense of either the fact that nothing really is going to happen on the external side for sometime or that it has happened and the consequences haven't been significant, we will have room to act.

"But, by and large, sooner rather than later it (higher holding limit for foreign portfolio investors) will happen," the RBI Governor said.