RBI always ready to act when markets misbehave, says Rajan -:- Equity Research

The RBI governor said that all of us had sneakily suspected that the UK opinion polls didn't reflect the true intent. "Hopefully, saner minds will prevail as we look back on this episode and people see the costs of leaving," he said. Brexit reflects the mood of a people who are tired of engaging with the world and with immigrants, Rajan said. UK does face an uphill task in managing its current account deficit, he added.  "If the UK doesn't want inflation perking up, the Bank of England will have to tighten its monetary policy."  Rajan doesn't see more breakaways from the EU happening.  "The euro has been depreciating and dollar strengthening. In general, this is not good news for economic growth," he said. The European Union will figure out ways to get over the Brexit, he said.  Central banks the world over have played a role in calming markets.  Rajan is sure that Britain didn't engineer the Brexit in order to have the pound sterling depreciated. "It is a consequence of this mass movement," he said.  Let me reiterate that the Reserve Bank is watching all the markets; it is ready to act when there is disorderly conduct/behaviour of the market," he said, adding that bond markets, currency and money markets are the most important markets for India that are under watch. Rajan dismisses fears of a global recession as a result of Brexit. There will be no dominoes effect, he added. "The general sense is that we will reflect on this dramatic event and you will see reactions from across the world. It is important that no one panics." Regarding repercussions in the US, Rajan believes there is no one-to-one correspondence to what happened in the UK. "Brexit does sound a warning bell about the kind of anger that people have against the system."  He believes that there is bound to be outflows from India as money has to go somewhere. But as long as India maintains its reputation as a country with macro stability, one shouldn't worry, he said. His message to financial markets was the adjustment will take place and there will be a reassessment of prospects for certain asset classes.