India on US watch list for currency practices.

The US has added India in its foreign exchange policies' list that monitors nations for unfair currency practices.

The US has added India to its monitoring list for currency practices and macroeconomic policies, alleging undervaluation in its currency.

Referring to higher purchases of foreign exchange by the Reserve Bank of India (RBI) over the first three quarters of 2017, the US said: “Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary”.

The semi-annual report on the US’ trade partners’ macroeconomic and foreign exchange policies, monitors any unfair currency practices. The monitoring list comprises China, Japan, Korea, Germany and Switzerland. India is the latest addition in in the report published last month.

However, terming this a pressure tactic by the US in the wake of the two sides having failed to resolve their trade spats, an official aware of the development said: “We do not manipulate our currency”.

Highlighting that India has been “exemplary” in publishing its foreign exchange market interventions, the US report said the RBI has noted that the value of the rupee is broadly market determined, with intervention used only during “episodes of undue volatility”.

“The exchange rate is not deemed to be undervalued by the IMF (International Monetary Fund),” the US said in the report.

It said that net purchases of foreign exchange over 2017 as a whole totalled $56 billion (2.2% of GDP), including activity in the forward market. The increase in intervention came in the context of strong capital inflows, with foreign direct investment (FDI) of $34 billion and foreign portfolio flows of $26 billion over the first three quarters of the year.

“This mirrored the pattern of the last few years, in which intervention has typically tracked FDI and institutional portfolio flows. Direct intervention has supported a steady increase in foreign exchange reserve levels,” the US said. (Source: The Economic Times).