IMF-GROWTH 2 LST

"Our assessment actually hasn't changed in a couple of
years that this is the case, and we believe this is because of
the policy of the RBI to allow the exchange rate to float and
to move in both directions in line with market forces,"
Kochhar said.
IMF Division Chief, Asia and Pacific Department, Laura
Papi said India is not the only country facing large capital
inflows. "A lot of emerging markets are facing that situation.
Actually India itself has faced that situation a couple of
years ago, and the authorities have handled it well."
Of course, with the floating currency, it would mean that
the currency could appreciate in response to inflows. If the
inflows were to be seen as contributing to asset price
bubbles, the RBI in the past also employed some prudential
measures. That could be also employed, Papi said.
"There is also quite a healthy outflow out of India for,
mainly for FDI purposes, which would reduce the pressure on
the currency.
"In the past, the central bank has also used its
policy on external commercial borrowing in response to capital
inflows. So we feel that the authorities have a good mix of
tools that could be employed if capital inflows surge very
significantly," the IMF official said. PTI