RBI prepared for any eventuality, says Raghuram Rajan in press release

Pound got pounded , global equity and currency markets crashed on Friday as Britain voted for leaving the European Union.

The benchmark Sensex has plunged by 922.75 points at 12.43 p.m. and Nifty 290.15 points. Almost all the major stocks are trading in the red.

united kingdom exit from europe relative image

Sentiment suffered a jolt following a meltdown in global equities after referendum result indicated Britain would leave the European Union, triggered all-round selling, dragging down the key indices from their key levels.

It was a somber mood at the boardrooms of Indian companies, which have huge exposure in Britain and in the European Union. Companies like Tata Motors (JLR),Tata Steel Europe and Motherson Sumi are expected to face falling sales, increased costs of operations and immigration barriers for its employees. However, as Britain voted to exit the EU, Tata Motors-owned Jaguar Land Rover on Friday said it is “business as usual” and will manage the long-term impact and implications of the decision, insisting “nothing will change” overnight for it and the automotive industry.

Though the actual exit of Britain will take a couple of years, companies like JLR and Tata Steel will have to make alternate arrangements to sell their products in the European Union.  
 
RBI, on the other hand, seems better prepared to handle any eventuality. Raghuram Rajan in his press release stated that the Indian economy has good fundamentals, low short term external debt, and sizeable foreign exchange reserves. These should stand the country in good stead in the days to come. 
 

The Reserve Bank of India is continuously maintaining a close vigil on the market developments, both domestically and internationally, and will take all necessary steps, including providing liquidity support (both dollar and INR), to ensure orderly conditions in financial markets.

To conclude, it may be bad news for Indian companies having exposure in the region. However, local companies which have taken loans in British currency will get a bonanza as Pound fell by almost 10% today. The investments from UK to India will also be expensive as it would get 10% less in Indian currency.

 

Download the Press release here: Press Release by Dr. Raghuram Rajan

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