"Exemplary", Says US On RBI Declaring Forex Market Intervention: 10 Points

The Department of Treasury said that if India continued with the same practices as in the last six months, it would be removed from its next bi-annual report. The Reserve Bank of India (RBI)'s net sales of foreign exchange over the first six months of 2018 led net purchases over the four quarters through June 2018 to fall to $4 billion, or 0.2 per cent of the GDP. Recent forex sales have come amidst a turnaround in foreign portfolio flows, as foreign investors pulled portfolio capital out of India (and many other emerging markets) over the first half of the year, the report said. The Treasury praised India for being "exemplary" in publishing its foreign exchange market intervention. The RBI has noted that the value of the rupee is broadly market-determined, with intervention used only during "episodes of undue volatility," it said. This mirrored a pattern of the last few years, in which intervention has typically tracked institutional portfolio flows. India maintains ample reserves according to the metrics of the International Monetary Fund (IMF) for reserve adequacy, particularly given that it maintains some controls on both inbound and outbound flows of private capital, US Treasury was quoted as saying in the PTI report. As of June 2018, foreign currency reserves stood at $380 billion, equal to 3.7 times gross short-term external debt, eight months of import cover, and 14 per cent of the GDP. Observing that India's current account deficit widened in the four quarters through June 2018 to 1.9 per cent of the GDP, following several years of narrowing from its 2012 peak, the Treasury said the current account deficit has been driven by a large and persistent goods trade deficit, which has in turn resulted from substantial gold and petroleum imports. The IMF projects the current account deficit to be around 2.5 per cent of the GDP over the medium term as domestic demand strengthens further and favourable growth prospects support investment. "India's exports to the US are concentrated in sectors that reflect India's global specialisation (notably pharmaceuticals and IT services), while US exports to India are dominated by key service trade categories, particularly travel and higher education," the report said. Once on the currency monitoring list, an economy remains there for at least two consecutive reports to help ensure that any improvement in performance versus US' criteria is durable and is not due to temporary factors. Along with India, China, Japan, Korea, Germany, and Switzerland were also placed on the list. (With agency inputs)

"Exemplary", Says US On RBI Declaring Forex Market Intervention: 10 Points

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