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Last Updated : Dec 16, 2013 03:09 PM IST | Source: CNBC-TV18

US Fed likely to begin taper from Dec 17: Expert

Gita Gopinath, professor of economics, Harvard University said that there was every reason to believe that tapering will be started as early as December 17 after US unemployment rate came down to 7 percent last week


Leading economists expect the US Federal Reserve to unveil its quantitative easing tapering plans post its upcoming policy meeting on next week.Speaking to CNBC-TV18, Gita Gopinath, professor of economics, Harvard University said that there was every reason to believe that tapering will be started as early as December 17 after US unemployment rate came down to 7 percent last week.


Gopinath also said that India is now better prepared to deal with taper than it was in August on the back of controlled current account deficit and stronger value of rupee.

Also Read: Blink and you'll miss it! The mini-taper


Below is the verbatim transcript of her interview on the channel

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Q: What is your view on US Federal Reserve pulling back monetary stimulus?


A: If they did announce a taper, it would be consistent with their pronouncements, the early pronouncements coming from Bernanke. Given that they work as a team, Yellen being the vice president, there is every reason to think that they would go through and that they would actually do some amount of tapering.


There has been good news on unemployment. They had originally said that they would consider tightening monetary policy once the unemployment rate comes down to 6.5 percent that was the number that they had mentioned to the markets. Now that it is at 7 percent and given that monetary policy works with lag there is a reason to think that they would actually start tapering as early as December 17.


Q: Last time, with even the hint of a taper, you saw huge weakness in the rupee. This time India seems to be better prepared. Current account deficit is expected to be less than 3 percent, how vulnerable do you think India is now to the taper?


A: I think India is in much stronger position than it was late August and in September when there was big volatility in the rupee value. The current account deficit being at 1.2 percent of GDP is a safe number. The fact that we have Raghuram Rajan as the governor of the RBI who is very clear about inflation, who is very clear about the priorities for the country and the financial sector makes it also a kind of a better fundamental in the economy.


If you look at what happened in August and the countries that were mostly affected by the Fed announcement were countries that were running large current account deficits like India and Indonesia and since India is now in a better position on those fundamentals, it is better placed to deal with what is coming out of the US.


Q: India for now seems to have averted a sovereign downgrade however given the fact that there has been huge wave of anti-incumbency in the state elections there may be a tendency for the current government to go ahead with populist measures. Do you think that threat of a sovereign ratings downgrade has now emerged once again?


A: Yes, we are at the border and the bigger problem is that we are between investment and non-investment grade. We have to be extremely careful about market perceptions. I hope that doesn't happen. Your guess is as good as mine about what the finance ministry is going to do in terms of meeting its target.

I would hope that it sticks to 4.8 percent target and follows through on that because it is just crucial for the credibility of the finance ministry to stick to its target at this point. If it doesn't and it takes populist measures then there will be a possibility of a downgrade.



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First Published on Dec 11, 2013 10:16 pm
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