WASHINGTON:India has been exemplary in releasing its intervention in the foreign exchange market, the US Treasury Department said on Friday, adding that New Delhi should allow the exchange rate to move flexibly to reflect economic fundamentals.
“The (Indian) authorities should allow the exchange rate to move flexibly to reflect economic fundamentals, limit foreign exchange intervention to disorderly market conditions and refrain from accumulating more large reserves,” a- he declared.
“As the economic recovery progresses, the authorities should continue to pursue structural reforms that can help increase productivity and living standards, while supporting an inclusive and green recovery,” the Treasury said.
In its semi-annual report to Congress on the macroeconomic and exchange rate policies of the United States’ major trading partners, the Treasury reviewed and assessed the policies of its major trading partners, accounting for over 80% of its foreign trade in goods and services. . , during the four quarters until June 2021.
In accordance with the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Act), the report concludes that no major trading partner of the United States has manipulated the exchange rate between its currency and the United States dollar in order to ” prevent effective balance of payments adjustments or gain competitive advantage in international trade.
However, he found that 12 economies deserve to be placed on the Treasury’s âWatch Listâ of major trading partners that deserve special attention to their monetary practices: Germany, China, Japan, Korea, Ireland, Italy, India, Malaysia, Singapore, Thailand, Mexico, and Switzerland. All except Switzerland were on the watch list in the April 2021 report.
âIndia has been exemplary in releasing its intervention in the forex market, both monthly spot buys and sells and forward net activity, with a two-month lag. While the RBI frequently intervenes in in both directions, the RBI bought currencies on the net in 10 of the 12 months through June 2021, with net intervention reaching $ 131 billion, or 4.6% of GDP, âhe said .
“The RBI made large purchases between July 2020 and February 2021, followed by modest sales in March and April of this year as the second outbreak in India took hold and net foreign wallet flows turned negative,” he said. he declared.
Observing that India has battled two outbreaks of COVID-19 since the start of the global pandemic in March 2020, the Treasury said India’s second major epidemic in the second quarter of 2021 had weighed heavily on growth.
With cases down significantly from the peak from May to the end of October, high-frequency indicators suggest that economic activity has rebounded rapidly since the start of the third quarter, according to the report.
The pace of vaccination has accelerated since mid-June and 24% of the Indian population was fully vaccinated by the end of October 2021. After significantly easing its fiscal policy to deal with the shock of the pandemic, the Indian government plans a 6.8 percent budget deficit as a percentage of GDP at the central government level in FY2022 (until March 2022), after a deficit of 9.3 percent of GDP during fiscal year 2021.
The Reserve Bank of India (RBI) cut its key rate by 115 basis points in the first half of 2020, and it has remained at 4% since May 2020.
India’s trade surplus on goods and services with the United States was US $ 40 billion in the four quarters through June 2021, according to the report, up sharply from its relatively constant level of ‘approximately US $ 30 billion from 2013 to 2019. The higher trade surplus is mainly attributable to the backs of higher US imports of Indian goods and regular imports of Indian services, while US exports of both fell due to weak domestic demand from India, he said.