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India's Rajan urges deep breath after market tumble

Reuters, Mumbai
RESERVE Bank of India (RBI) governor, Raghuram Rajan, expressed comfort on Wednesday about core inflation and highlighted the narrowing current account deficit as he sought to reassure investors worried the country' would be hit hard in a global market sell-off.
Most immediately, he pledged to move slowly if needed in winding down an oil window that provides dollars directly to state-run oil companies, while announcing a bond sale of 80 billion rupees on Monday to inject liquidity in markets. Both had been key concerns in markets.
The news briefing, announced earlier in the day, was an unprecedented departure for the traditionally cautious central bank. Since taking the helm of the Reserve Bank of India (RBI) in September, Rajan has pledged to be more communicative and has so far been warmly welcomed by investors.
Still, Rajan's remarks had a mixed impact on markets, sending benchmark 10-year bond prices rallying, although the rupee failed to gain much despite ending the day well above a two-month low hit earlier. Stock markets were already closed.
"It's important that the RBI clarifies interpretation of economic events and the likely' direction of economic policies at times of uncertainty so that the market worries about the right things and does not get into a tizzy' about the wrong ones. That is my quote today," Rajan told reporters.
"There is no fundamental reason for volatility' in value of the rupee," he also said. "At some time, it makes sense to take a deep breath and examine the fundamentals. I hope you all will do that."
Rajan addressed reporters after stronger-than-expected US jobs data last week had sparked concerns about an early end to the Federal Reser\'e's stimulus, hitting the rupee and sending Indian bonds and shares tumbling, although markets remain well above the levels of the summer lows.
Some investors had started to fear a repeat of the summer, when the rupee slumped to a record low of 68.85 to the dollar, punished by worries about the country's vulnerability should foreign investors sell because of Fed tapering.
Analysts also cited some comfort from the governor's remarks on inflation given the RBI has raised interest rates by a half percentage point since September in two back-to-back actions as it fights off rising consumer prices.
Worries about yet another rate hike had gripped investors after India reported late on Tuesday consumer price inflation accelerated more than expected to 10.09 percent in October from 9.84 percent in September.
At his briefing, Rajan called food inflation "worryingly high", but said he was comforted by a downward trend in the core consumer price index.
"The RBI has attempted to calm the market by verbal intervention. On the policy front, it seems clear that the governor is in no hurry to hike the repo rate," said Upasna Bhardwaj, economist with ING Vysya Bank.
Rajan also surprised analysts by saying the RBI's estimate for the current account deficit for the fiscal year ending in March was $56 billion, the first time in recent memory' the central bank has given such a forecast.