India is now bulking up against the outflows as Fed
Analysts and traders have earned a slowing economy and increasing fiscal deficit. But, $600 billion in reserves should have had helped it in fighting market volatility from any U.S. monetary tightening.
India, Asia’s third-largest economy has bad memories of previous attempts by the Federal Reserve to run away from crisis-mode policies that too especially in 2013 where the rupee sank records low!
Recently, the Fed is giving increasing thought to when it has to reduce stimulus, India’s currency rupee is again under pressure as it has fallen to 1.8% in the past four weeks.
Even though it was expected that India’s increased currency reserves will boost resilience but a more sad economic outlook is on the finance sector.
Many people have a concern regarding the financial market because of: a) India’s high budget deficit b) larger growth declines as compared to its peers and c) third pandemic wave and under-vaccinated nation.
Alok Sheel, who is RBI Chair professor at New Delhi told INRIER about his concern regarding the Indian economy and told him that just like in 2013, the economic outlook scares him.
He also said that “Real Growth in the pre-pandemic was 4% and now the average growth expected over next three years is well under 3% which is even lower than 4%which we thought was a disaster”.
Decreasing the value of the rupee has caused many concerns. A find manager sold his entire $150 Million portfolios in India Government and has bought Thai securities with some of those funds.
An official said that reserve should partly help shield the rupee, both the government and RBI are working on plans to contain volatility if the Fed moves sooner than expected to raise rates and give back the amount of stimulus it gives the economy.
We know that India is the second biggest oil importer in Asia and a weaker rupee will result in more expensive imports.