A signboard for the Reserve Bank of India (RBI) is displayed inside the central bank’s headquarters in Mumbai, India.
Dheeraj Singh | Bloomberg | Getty Images
India’s central bank is unprepared to deal with sudden outflows of foreign funds and a sharp decline in the rupee that could occur if Republican candidate Donald Trump wins next week’s U.S. presidential election, two people familiar with the bank’s thinking said. It is said to be in order.
The Reserve Bank of India will be able to leverage its large foreign exchange reserves to protect its currency in the event of global market fluctuations or outflows of foreign funds, officials said. They spoke on condition of anonymity because of the sensitivity of the issue.
“Reserves are being built up to deal with excessive volatility. If there is a sudden outflow of funds, the central bank will step in and manage it, as it has in the past,” one of the people said. .
RBI did not respond to an email seeking comment.
Sources also said that a sharp rise in U.S. tariffs on China could have a ripple effect on India and other emerging economies, including import inflation and the impact of China’s policy responses, which could affect India’s monetary policy. he warned.
Republican candidate Donald Trump and Democratic challenger Vice President Kamala Harris are effectively tied heading into the Nov. 5 election, according to the latest Reuters/Ipsos poll released Tuesday. President Trump has vowed to impose a 60% tariff on imports from China.
U.S. Treasury yields have risen about 50 basis points this month, with the dollar index up 3.3% as Election Day approaches. More than $10 billion of foreign funds have flown out of Indian stocks, and foreigners have withdrawn a record $700 million from the bond market.
The rupee has been the least volatile of Asia’s major currencies this month, but it has been moving in a narrow range of 83.79 to 84.09 to the dollar, hitting record lows one after another this month, prompting the central bank to urges intervention.
India’s foreign exchange reserves INFXR=ECI declined for the third consecutive week as of October 18, to $688.27 billion, the lowest level in over a month. Latest RBI data showed that foreign exchange reserves are still the fourth largest in the world, but are sufficient to cover the entire level. Foreign debt and almost a year’s worth of imported goods.
The central bank is also closely monitoring the prospect of new tariffs that the next U.S. administration may impose on imports, a second source said. This is because it could provide a new stimulus to US inflation, which indirectly affects emerging market economies.
“If there are import inflation pressures, monetary policy will remain in restrictive mode for a longer period of time,” the official added.
India’s retail inflation accelerated in September to its highest level in nine months. The RBI has kept interest rates unchanged for 10 consecutive meetings, but changed its stance from “withdrawal of easing measures” to “neutral” in October. Central bank officials have not committed to or hinted at the timing of a rate cut.
People familiar with the matter said the People’s Bank of China will be keeping an eye on developments after the election as China considers issuing more than 10 trillion yuan ($1.4 trillion) in additional bonds over the next few years to rebuild its fragile economy. It is said that they are doing so.
China’s stimulus plans could be strengthened if U.S. tariffs further damage China’s economy, causing foreign capital to flow into China from India and other emerging markets.
“At the moment, it’s actually bleeding into China, and all emerging countries are losing money to China. So if Trump wins, there will be a new source of spillover,” the second person said. spoke.
