The country may see some capital outflow and weakness in stocks following the rate hike by US Federal Reserve, but the negative impact is not expected to be severe, former RBI Governor C Rangarajan said today.
"There could be some outflow because expectations are that the rate of return in the American economy will be better...some capital will move out (of India)", he told PTI in an interview, but hastened to add: "I expect the negative impact of that outflow not to be very great, but the inflow may be somewhat lower than before".
Rangarajan, a former Chairman of the Prme Minister's Economic Advisory Council, added that India's situation on the balance of payment side is reasonably under control now. "It (balance of payment) is not like what happened a few years ago...when the outflow happened...the current account deficit was high.
"Even though exports are not doing that well (now), there has been decline in imports also because of the fall in oil prices. Therefore, our current account deficit is less than two per cent. That's manageable," he said.
There could be some impact on stock prices, but since the impact of the rate hike on capital outflows is not expected to be strong, its effect on the stock market too is likely to be limited, he said.
"There could be some decline in stock prices immediately", Rangarajan said.
As for whether gold prices would fall as a result of the rate hike, he pointed out that prices of the precious metal have been falling for quite some time and the Fed's decisionis not likely to have any impact on them. "But there are factors operating which are bringing the gold prices down," he said.
