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India prepared for US Fed rate rise: central bank chief

India is now better prepared to handle the impact of any US interest rate increase because of signs its economy is improving, the central bank chief said in an interview published on Sunday (Aug 31).

NEW DELHI: India is now better prepared to handle the impact of any US interest rate increase because of signs its economy is improving, the central bank chief said in an interview published on Sunday (Aug 31).

Reserve Bank of India Governor Raghuram Rajan said foreign funds were less likely to flow out of the Indian markets due to indications Asia's third-largest economy was on the mend. His comments come amid speculation of a rise in US interest rates, maintained at near-zero since 2008, which would impact on emerging markets such as India as it could lead to rapid outflows of capital.

In August last year, the rupee tumbled to an all-time low over signals that the US Federal Reserve would raise rates. But it rebounded after steps were taken to reduce the current account deficit and increase foreign exchange reserves.

"We certainly have done a great deal of preparation and are in a very different position from the summer of 2013," Rajan told the Times of India. "My sense is that even when the Fed withdraws, people after an initial bout of withdrawal may consider India a good place to leave their money," he added. "Most important, there are signs that growth is just around the corner."

India's economy grew by a forecast-beating 5.7 per cent in the first financial quarter, its best pace since early 2012, data released on Friday showed. Finance Minister Arun Jaitley on Saturday called the figures "encouraging", adding that they would help the government meet its ambitious fiscal deficit target of 4.1 per cent of GDP.

Some economists say six-per cent-plus growth may be achievable this year after the election of right-wing Prime Minister Narendra Modi in May spurred business confidence.

Nicknamed "The Guv", Rajan took charge as central bank chief last September with the unenviable task of propping up a weak rupee, curbing rising inflation and reviving slowing growth.