US treasury published its bi-annual currency manipulation report. This takes into account the period Jun2016 to July 2017. Quotes from the report.
https://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/2017-10-17%20(Fall%202017%20FX%20Report)%20FINAL.PDF
“India is very close to meeting this criterion for the four quarters ending June 2017, with net purchases of foreign currency slightly below 2 percent of GDP.”
“Over the first half of 2017, there has been a notable increase in the scale and persistence of India’s net foreign exchange purchases, which have risen to around $42 billion (1.8 percent of GDP) over the four quarters through June 2017. India has a significant bilateral goods trade surplus with the United States, totalling $23 billion over the four quarters through June 2017. Treasury will be closely monitoring India’s foreign exchange and macroeconomic policies.”
Other observation from the report
- The report says that according to IMF measure of reserve adequacy India’s reserves are USD120 bn more than required. China is higher by 1300 bn and Brazil by 170bn.
- In the first half of 2017 India added 10% of total FX reserves added globally, whereas India holds only 3.5% of total FX reserves.
- Korea and Taiwan have reduced their foreign exchange purchase, the same has been acknowledged. Taiwan consequently has been removed from the watch list.
- China has been praised for preventing undue depreciation of Yuan.
- Japan and Germany have been acknowledged to have not intervened in FX markets for over multiple years.
- Switzerland has been, as earlier, acknowledged as a special case of currency intervention given their safe haven demand.
Conclusion
The report doesn’t provide for any penalties on countries which are on the watch list and therefore Indian authorities might not be too worried about the same, but getting qualified on the watch list might have implications on any negotiations related to the IT sector or other trade agreements. The next report is due in Apr 2018 which will consider CY107 where India is specifically at risk of getting listed on the monitored list. India’s current intervention for CY 2017 stands at 2.27%.
It could mean that for rest of 2017 the highs of 65.50 would be aggressively sold by RBI in order to unnecessarily avoid getting highlighted in the next report.
Current Intervention figures for CY2017.
Details
USD bn
sign
Total Addition to headline reserves from 1st Jan 2017
39.64
+
Revaluation impact due to Currency
13.57
-
Revaluation impact due to movement in yields
-1.72
-
Forward intervention in CY 2017
32.2
+
Expected intervention from the last record date (spot and forward)
-2
+
Total Intervention by RBI till now
57.99
India GDP FY18 at USDINR 64.5
2,590.00
2% of GDP
51.80
Room left for intervention
-6.19
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