India’s economy is much better placed today and is far more resilient in comparison to 2013 to withstand the impact of a possible repeat of the US taper tantrum, experts said. India’s economic fundamentals, backed by strong foreign exchange reserves, better debt-to-GDP ratio, comparatively low inflation and high growth rate, show that the country’s economy is well insulated to manage any significant volatility.
Earlier, in 2013, the US Federal Reserve announced withdrawing quantitative easing. The policy was aimed at reducing liquidity from the market with the US Fed slowing the pace of its purchases of Treasury bonds. This announcement by the then Fed chairman Ben Barnanke led to a panic in markets, leading to a hike in Treasury yields. Investors dumped investments in emerging markets like India in favour of safe-haven US Treasury bonds.
This time too, the US Fed intent seems to have spooked investors. India’s benchmark 10-yr bond yields soared to 6.9% last week, from about 6.3% in November.
Strong economic fundamentals today in comparison to 2013
“We are nowhere near that kind of condition (2013 taper tantrum) for a simple reason that we have much better macroeconomic stability. Right now inflation is under control, we have much better external balance. In fact, the taper tantrum happened when inflation was high at around 10-11%, CAD was mostly 5% or 6% and growth was around 5%. Forex reserves are also much better,” NR Bhanumurthy, Vice-Chancellor at Ambedkar School of Economics University told Financial Express Online.
India is currently the fourth largest foreign exchange reserves holder in the world after China, Japan and Switzerland. The forex reserves are currently at $633.6 billion as at end-December 2021, in comparison forex reserves were nearly half of the current levels at $304.2 billion in 2014 fiscal after the taper tantrum incident. While the external debt-to-GDP ratio, which compares total external debt to country’s GDP, stands at 20.1. In the 2013-14 fiscal, it stood at 23.9.
Read More at https://www.financialexpress.com/economy/taper-minus-tantrum-indian-economy-more-resilient-today-well-placed-to-absorb-us-fed-tightening-shock/2427666/
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