Days after the US once again put India on its currency manipulator watchlist, India’s commerce secretary Anup Wadhawan on Tuesday said the move is an intrusion of the policy space of the Reserve Bank of India (RBI).
“I personally don’t understand its rationale or economic logic,” Wadhwan said, adding that India’s central bank is not accumulating reserves and its activity in the foreign exchange market is ‘perfectly balanced’.
“These are in my view a 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. Our overall reserves have been fairly steady at $500-600 billion. We are not accumulating reserves. We have a steady pattern of reserves that fluctuates, based on market based transactions. The central bank’s activity in the foreign exchange market has been perfectly balanced and completely legitimate and within the accepted monetary policy mandate of the central banks across the world,” Wadhawan told reporters in a virtual briefing.
Last week, the US Department of Treasury put India in its monitoring list of countries for currency manipulation. According to its annual report, this was based on high dollar purchases by the RBI of close to 5% of gross domestic product (GDP), thereby breaching the two per cent threshold. Besides, India also has a large trade surplus with the US, which further widened in the financial year 2020-21.
“Treasury found that eleven economies warrant placement on Treasury’s “Monitoring List” of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and Mexico,” according to an official statement released by the US Department of Treasury on April 16.
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