Hard currency shock?

NEW DELHI (CU)_The Indian government has questioned the United States’ decision to put India on the “Monitoring List”, saying the country’s currency required close attention.

Responding to the move on Tuesday (21 April), India’s commerce secretary Anup Wadhawan said: “I don’t understand any economic logic”. He claimed the list is an intrusion into the policy space the central banks need to meet their mandates.

Last week, the US Treasury Department added India, along with Singapore, Thailand and Mexico, to a watch list for currency manipulators, citing high dollar purchases. According to the Department, another reason for India’s inclusion to the list was the fact that the country’s trade surplus exceeded $20 billion. In the 2020/21 financial year India’s trade surplus with India grew to $23 billion, from around $18 billion in the previous year.

However, Wadhawan insists that the Reserve Bank of India (RBI) has been taking necessary measures to maintain stability of the financial markets, unlike China, who has been accumulating forex reserves in the past.

“These are, in my view, very legitimate market-based operations of a central bank. It is a mandate of the central bank to provide stability in the currency as a result of which central banks buy and sell foreign currency,” he said. “Our overall reserves have been fairly steady at $500 billion to $600 billion. We are not accumulating reserves like China, which at one point had reserves of $4 trillion.”

However, the report issued by the US Treasury has called on Indian authorities to limit their intervention in the foreign exchange market to “circumstances of disorderly market conditions”, and to refrain from excessive reserve accumulation.

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