Hey, don’t label India as currency manipulator: Raghuram Rajan

By: | Updated: November 2, 2017 3:34 PM

US Treasury said that it was going to "closely monitor" the Reserve Bank of India's activities as there was a “notable increase in the scale and persistence” of dollar purchases.

RBI, Raghuram Rajan, Central Bank, Former RBI Governor, Banking System, Subramanian SwamyFormer RBI Governor Raghuram Rajan (PTI)

Sometime in the middle of October, the US Treasury said that it was going to “closely monitor” the Reserve Bank of India’s activities as there was a “notable increase in the scale and persistence” of dollar purchases, but notably did not add India under its watch list for potential currency manipulators. While the RBI has not responded to US Treasury’s allegations, former RBI governor Raghuram Rajan strongly defended India by saying that India should not be labelled as “currency manipulator.”

In an interview with CNBC, Raghuram Rajan, who is now a Finance Professor at the University of Chicago, said that it was difficult to label a country a currency manipulator simply on the basis of one metric. “I don’t suspect the Treasury will do that, but it shouldn’t, even if it’s thinking of it,” told CNBC on the sidelines of the Barclays Asia Forum.

The US Treasury uses three criteria to determine manipulation, of which, Raghuram Rajan pointed out, India did not flout all three. The three criteria of US Treasury are: Bilateral trade surplus with the US to $20 billion, current account surplus at 3% of country’s GDP, and net purchases of foreign currency to 2% of country’s GDP over a year.

India’s foreign exchange buying had surged to 1.8% in 12 months till June, which was close to the 2% limit. “Over the first half of 2017, there has been a notable increase in the scale and persistence of Indias net foreign exchange purchases, which have risen to around USD 42 billion (1.8% of GDP) over the four quarters through June 2017,” the Treasury said in its latest half-yearly report to the Congress.

Raghuram Rajan said that India’s current account deficit “could get larger if the price of oil rises,” and the country needed its own foreign currency reserves to balance capital outflows.

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