FM calms fears over further hike in rates

Finance Minister P Chidambaram has made a pointed reference to calm fears of an impending hike in interest rates by stating that he does not see any changes being made by the Reserve Bank of India at its forthcoming July review of the monetary policy.

The central bank raised the reverse repo rate by 0.25 per cent to 5.75 per cent on June 8, leading to an increase in consumer loans across the board.

In an interview to Bloomberg TV at Brussels, Chidambaram said, "I think what the bank (RBI) did in June should hold and I don't see any major change being made at the next quarterly meet. It was necessary for the bank to be ahead of the curve," he said, referring to the wave of recent interest rate hikes by central banks around the world.

In response to a question on concerns about "a bubble growing in the Indian markets", the minister said the word, bubble, was a very strong one.

"We think that the price-earnings ratio did move up a little too much for our comfort. The correction was overdue. The correction, of course, when it took place was a little disorderly, which made me unhappy. But I think... at the moment, the price-earnings ratios are in the comfort zone," he said.

Chidambaram added that he expected markets to stabilise now. "What we are disappointed with is the volatility in all emerging markets. If the market moves up or moves down, we accept that. But volatility tends to frighten genuine long-term retail investors," he said.

He discounted any impact of stock market volatility on the Indian economy or foreign direct investment (FDI) inflows. He said FDI would continue to flow into India.

"It is only a function of how quickly and how comprehensively we lift the restrictions on FDI, which remain in a few sectors. In sectors which are completely open, FDI flows have been copious and very encouraging," he said.