The Reserve Bank of India (RBI) logo is displayed at the headquarters of the Central Bank of India in Mumbai.
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India’s central bank is well-positioned to deal with possible sudden outflows of foreign funds and a sharp depreciation of the rupee if Republican candidate Donald Trump wins next week’s U.S. presidential election, two sources familiar with its thinking said.
Sources said the Reserve Bank of India will be able to tap into its vast foreign exchange reserves to defend the currency amid global market volatility and foreign capital outflows. They requested anonymity due to the sensitivity of the matter.
“Reserves are set up to deal with excessive volatility. If there is a significant outflow, the RBI will step in to manage it, as it has been doing,” one source said.
The Reserve Bank of India did not respond to an email seeking comment.
Sources also warned that any significant increase in U.S. tariffs on China could trigger knock-on effects in India and other emerging economies, including the impact of imported inflation and China’s policy response, which could affect India’s monetary policy.
Republican candidate Donald Trump and his Democratic opponent, Vice President Kamala Harris valid bundle Heading into the November 5 general election, according to the latest Reuters/Ipsos poll released on Tuesday. Trump vowed to 60% tariff imposed About importing from China.
As Election Day approaches, U.S. Treasury yields have risen about 50 basis points this month, and the U.S. dollar index has risen 3.3%. Foreign capital outflows from Indian equities hit a record of more than $10 billion, while foreigners withdrew $700 million from debt markets.
The rupee hit a series of record lows this month, prompting central bank intervention, although it has been one of the least volatile major Asian currencies, holding in a narrow range of 83.79-84.09 against the dollar.
The latest data from the Reserve Bank of India shows that as of October 18, India’s foreign exchange reserves fell to US$688.27 billion for the third consecutive week, the lowest level in more than a month. Although it still ranks fourth in the world, it is enough to cover its overall level of external debt. and imports in the past year.
The Reserve Bank of India is also keeping a close eye on the prospect that the next U.S. government may impose new tariffs on imported goods, as this could exacerbate a new round of inflation in the U.S. and indirectly affect emerging market economies, a second source said.
“If there is imported inflationary pressure, then monetary policy will remain in tightening mode for a longer period of time,” the person added.
India’s retail inflation accelerated to its highest level in nine months in September. The Reserve Bank of India has kept interest rates stable for 10 consecutive meetings, but in October adjusted its stance from “withdrawing easing” to “neutral.” Central bank officials have yet to commit or hint at any timing for a rate cut.
Sources said the central bank will be watching post-election developments in China, which is considering issuing more than 10 trillion yuan ($1.4 trillion) of additional debt over the next few years to revive its economy. fragile economy.
China’s stimulus measures are likely to increase if U.S. tariffs further damage the Chinese economy, a factor driving foreign capital flows into China from India and other emerging markets.
“Right now, we are actually bleeding money to China, all emerging markets are losing money to China, so if Trump wins, it will create a new source of spillover,” the second source said.
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