Rangarajan sees some capital outflows

Hyderabad: Former RBI Governor C Rangarajan on Thursday said that India might see some capital outflow and weakness in stocks following the rate hike by US Federal Reserve. He however maintained that negative impact would not be severe. "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 said.

I expect the negative impact of that outflow not to be very great, but the inflow may be somewhat lower than before, he added. Rangarajan, also a former Chairman of the Prime Minister's Economic Advisory Council, added that India's situation on the balance of payment side is reasonably under control now.

"The 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 decision is not likely to have any impact on them. "But there are factors operating which are bringing the gold prices down," he said. (With inputs from PTI)