RBI purchases dollar 5% of GDP-us retains India in currency manipulator watchlist

The US treasury department has retained India in the currency manipulator watch list in its semi-annual report submitted to the Congress. The reason being higher dollar purchases by RBI of close to 5% of GDP large on account of huge capital inflows, which is higher than its threshold of 3% of GDP. India was added to the list for a second time in December 2020. It was first added to the list in December 2018, and later removed in 2019.

What did the US Treasury says about India?

Over the four quarters through December 2020, five major US trading partners-Vietnam, Switzerland, Taiwan, India and Singapore- Intervened in the foreign exchange market in a sustained, asymmetric manner with the effect of weakening their currencies, according to the report released on April 16.

So what should India do?

The authorities should allow the exchange rate to move to reflect economic fundamentals, Limit foreign exchange intervention to circumstances of disorderly market conditions, and Refrain from excessive reserve accumulation the report says.

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