India on Friday remained on the US treasury department’s currency “Monitoring List” of major trading partners as Washington placed India along with 11 other major economies that merit close attention to their currency practices and macroeconomic policies.
The countries are China, Japan, South Korea, Germany, Italy, India, Malaysia, Singapore, Thailand, Taiwan, Vietnam and Mexico, said the US Department of Treasury in its semi-annual Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.
All except Taiwan and Vietnam (which were subject to enhanced engagement) were on the Monitoring List in the December 2021 Report, a media release said.
“The Administration continues to strongly advocate for our major trading partners to carefully calibrate policy tools to support a strong and sustainable global recovery. An uneven global recovery is not a resilient recovery. It intensifies inequality, exacerbates global imbalances and heightens risks to the global economy,” said Secretary of the Treasury Janet L Yellen.
Explaining its decision to keep India on the list, the Treasury said that India met two of the three criteria in the December 2021 and the April 2021 Reports, having a significant bilateral trade surplus with the US and engaged in persistent, one-sided intervention over the reporting period.
“India met only the significant bilateral trade surplus threshold in this Report,” the Treasury said, adding that India will remain on the Monitoring List until it meets fewer than two criteria for two consecutive Reports.
According to the report, India (with $569.9 billion) has the fourth largest foreign exchange after China ($3.2 trillion), Japan ($1.2 trillion) and Switzerland ($1 trillion).
“RBI foreign exchange purchases in recent years have resulted in an elevated level of reserves. As of December 2021, foreign exchange reserves totalled $570 billion, equivalent to 18 per cent of GDP and 209 per cent of short-term external debt at remaining maturity,” it said.
In the 2021 External Sector Report, the IMF judged that India’s reserves at the time stood at 197 per cent of the IMF’s reserve adequacy metric as of end-2020.
The Treasury said that similar to many Asian emerging market peer currencies, the rupee weakened against the US dollar over the course of 2021, depreciating by 1.9 per cent.
Rupee volatility was pronounced during the first half of 2021 as the economy contended with the large, second COVID-19 outbreak; subsequently, the rupee depreciated steadily against the dollar during most of the second half of the year, it said.
“By contrast, the rupee held up relatively well compared to the currencies of many India’s regional trading partners — on a nominal effective and real effective basis, the rupee appreciated 0.8 per cent and 2.2 per cent over 2021, respectively,” said the report.
The Indian authorities, it said, should allow the exchange rate to move flexibly to reflect economic fundamentals, limit foreign exchange intervention to circumstances of disorderly market conditions, and refrain from further significant reserve accumulation.
“As the economic recovery progresses, the authorities should continue to pursue structural reforms that can help lift productivity and living standards, while supporting an inclusive and green recovery,” the Treasury added.
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