India’s central bank is well-equipped to deal with a possible sudden outflow of foreign funds and any sharp fall in the rupee if Republican candidate Donald Trump wins next week’s US presidential election, two sources familiar with the bank’s thinking said. .
The Reserve Bank of India will be able to use its large foreign exchange reserves to protect the domestic currency in the event of global market volatility and foreign fund outflow, sources said. He spoke on condition of anonymity due to the sensitivity of the matter.
“The reserves have been built up to deal with extreme volatility. If there are sharp withdrawals, the RBI will step in to manage it, as it has been doing,” a source said.
RBI did not respond to an email requesting comment.
Sources also warned that any significant increase in US tariffs towards China could have adverse effects on India and other emerging economies, including imported inflation and consequences for China’s policy responses that could impact India’s monetary policy. Can influence.
Republican nominee Donald Trump and his Democratic rival, Vice President Kamala Harris, are effectively tied in the November 5 election, according to the latest Reuters/Ipsos poll published on Tuesday. Trump has vowed to impose 60% tariffs on imports from China.
U.S. Treasury yields have risen nearly 50 basis points this month and the dollar index has strengthened 3.3% as Election Day approaches. There was a record outflow of more than $10 billion in foreign funds from Indian equities, while foreigners pulled out $700 million from the debt market.
The rupee has hit consecutive record lows this month, prompting the central bank to intervene, although it has been one of the least volatile major Asian currencies, hovering in a narrow range of 83.79-84.09 per dollar.
India’s foreign exchange reserves fell for a third week to $688.27 billion as of October 18, the lowest in more than a month, though it remains the world’s fourth-largest reserve, the latest RBI data showed. Enough to cover the entire level of debt. About a year of imports.
The second source said the RBI is also closely keeping a close eye on the possibility of new tariffs that the next US administration may impose on imported goods, as this could trigger a new round of US inflation which would indirectly impact emerging market economies. Will do.
“If there are imported inflationary pressures, monetary policy will remain in accommodative mode for a longer period,” the source said.
India’s retail inflation rose to a nine-month high in September. The RBI has kept rates steady for 10 consecutive meetings, but changed its stance from “withdrawal from need” to “neutral” in October. Central bank officials have not set or given any indication of any time frame for the rate cut.
The sources said the central bank will keep an eye on how developments play out in China after the election, which is expected to issue more than 10 trillion yuan ($1.4 trillion) of additional debt over the next few years to revive its fragile economy. Is thinking.
China’s stimulus efforts, which may intensify if US tariffs further damage its economy, have been a factor driving foreign funds from India and other emerging markets to China.
“At the current time, we are really hurting China, all emerging markets are hurting because of China, so if Trump wins, that will create a new source of spillover,” the second source said.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
