India can fend monetary policy normalisations by others
With forex reserves of over $630 billion and plenty of “policy room” to deal with the situation, India can withstand normalisation of monetary policy by central banks of large economies like the US Federal Reserve, the Economic Survey said on Monday.
New Delhi: With forex reserves of over $630 billion and plenty of "policy room" to deal with the situation, India can withstand normalisation of monetary policy by central banks of large economies like the US Federal Reserve, the Economic Survey said on Monday.
The survey noted that due to accretion of large foreign exchange reserves in recent months, vulnerability indicators relating to reserves such as reserves to total external debt, reserves to short-term debt (residual maturity) and reserve cover of imports have shown marked improvement in the first half of the current fiscal vis-à-vis FY2014, the taper tantrum year. Taper tantrum phenomenon refers to the situation in 2013 when emerging markets witnessed capital outflows and spike in inflation after the US Federal Reserve started to put brakes on its quantitative easing programme.
The US Federal Reserve has indicated interest rate hikes and other measures aimed at getting inflation under control. It has officially announced the start of its monetary policy "normalisation" plan. Another key vulnerability indicator -- net IIP to GDP ratio -- has declined to (-) 11.3 per cent as against (-) 18.2 per cent in the said period, the survey noted, adding the external debt to GDP ratio has also declined since the taper tanrum of 2013.
Besides, it said, India witnessed a current account surplus of 0.9 per cent in the Q1 of 2021-22 on top of similar surplus in 2020-21 after a gap of 17 years.
