INR may rise as US puts back on watch list

TIMES NEWS NETWORK

Mumbai:

The US has for the third time placed India on its currency manipulator watch list after the RBI’s relentless dollar purchase that resulted in forex reserves rising by $100 billion this fiscal. The move was disclosed in the US Treasury’s semi-annual currency manipulation report. It labelled and as currency manipulators, and added , and India to the seven others already in the watch list.

The threat of a manipulator tag comes even as India has been arguing that its intervention is only to manage the tidal wave of capital flows triggered by actions of central banks like the US Fed. RBI governor Shaktikanta Das had last year called for greater understanding on the need for reserves rather than stigmatising countries with a ‘manipulator’ tag. Das had also indicated that such actions might prompt emerging markets to move away from the dollar as a reserve currency.

India had been removed from the watch list last year. According to bankers, the tag could lead to the rupee appreciating as the RBI might step back from its dollar purchases.

“I hope this triggers a rethink in the ’s forex intervention strategy, particularly considering that reserves were already enough to cover more than a year’s imports when they were at $500 billion,” said DBS India head (treasury) Ashish Vaidya.

He pointed out that India is one of the few countries that continues to build dollar reserves post-2015, thereby funding US growth. “Holding either the currency or rates for too long can cause imbalances like the one at hand where sterilisation of dollar inflows has resulted in the creation of rupee liquidity and the consequent need to mop up the surplus,” said Vaidya.