India is well prepared to deal with any rate hike by the US Federal Reserve, although a stronger dollar may have a significant impact on financial systems in Indian and other emerging markets, International Monetary Fund chief Christine Lagarde said on Monday.
The Fed is widely expected on Wednesday to signal an increase in its low interest rates by June or September, a move that would result in flight of capital from emerging markets, including India.
Emerging and developing economies could face a triple hit of a stronger US dollar, higher global interest rates, and more volatile capital flows, Lagarde said.
"A stronger dollar will have a significant impact on financial systems in emerging markets, including India, because many banks and companies have increased their borrowing in dollars over the past five years," she added.
"India is probably well prepared and fundamentally strong. Second what chairman of the Fed has indicated that she will pay attention to fact and they have spectrum of in-depth analysis of the facts which are way beyond these simple unemployment rate... They are much more granular. So this would be based on the fact," Lagarde said during a lecture at the Lady Shriram College in Delhi.
Reserve Bank of India governor Raghuram Rajan, formerly chief economist of IMF, had also said earlier that there would be some volatility in emerging markets once the US Federal Reserve decided to raise interest rates, but India is well prepared deal with the market volatility.
He had said that interest rate hike may not have much impact on India as "we have got plenty of reserves relative to where we were last year...We have got inflation coming down in a substantial way".
