The US could remove India from its currency monitoring list of major trading partners, the Treasury Department said, citing certain developments and steps taken by New Delhi, which address some of its major concerns.
India was for the first time, in April, placed by the US in its currency monitoring list of countries with potentially questionable foreign exchange policies along with five other countries — China, Germany, Japan, South Korea and Switzerland.
India’s circumstances have shifted markedly, as the central bank’s net sales of foreign exchange over the first six months of 2018 led net purchases over the four quarters through June 2018 to fall to $4 billion, or 0.2% of GDP.
This represented a notable change from 2017, when purchases over the first three quarters of the year pushed net purchases of foreign exchange above 2% of GDP. Recent sales came amid a turnaround in foreign portfolio inflows, as foreign investors pulled portfolio capital out of India (and many other emerging markets) over the first half of the year.
The rupee depreciated by around 7% against the dollar and by more than 4% on a real effective basis in the first half of 2018. India has a significant bilateral goods trade surplus with the US, totaling $23 billion over the four quarters through June 2018, but India’s current account is in deficit at 1.9% of GDP.
The three pre-conditions for being named currency manipulator are: a trade surplus of over $20 billion with the US, a current account deficit surplus of 3% of the GDP, and persistent foreign exchange purchases of 2% plus of the GDP over 12 months.