Wrong listing – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/editorial/the-rbi-must-ignore-the-us-action-and-continue-with-its-efforts-to-maintain-rupee-stability/article34423977.ece

The RBI must ignore the US action and continue with its efforts to maintain rupee stability

The decision of the US Department of Treasury to include India in the currency manipulator’s list in its April 2021 report need not weigh too heavily with the RBI. The report examines the macroeconomic and foreign exchange policies of major trading partners of the US, to find out if any of them is manipulating its currency to expand the trade balance with the US. With the current account deficit of the US expanding to 3.5 per cent of GDP in the fourth quarter of 2020, the largest as a share of GDP since the last quarter of 2008, it is not surprising that the country would try to apply pressure on its trading partners. It has identified five countries — Vietnam, Switzerland, Taiwan, India and Singapore — as currency manipulators.

Going ahead, it’s quite likely that India will be out of this list. This is because the RBI has halted its dollar purchases in the spot market since February, shifting its interventions to the rupee forward market instead. With the RBI having to support the Centre’s large borrowing programme in FY22 through purchases of Indian government bonds, the room to purchase dollar denominated securities is limited. The Indian currency is likely to drift with a downward bias over the coming months as the foreign capital flows are likely to be lower, at least until the second wave of Covid is contained. The weakness in the dollar is the only factor conducive to the Indian currency at this juncture.

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