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The Australia and New Zealand Banking Group (ANZ) analysts highlight that its going to be a tough task for the Reserve Bank of India (RBI) to manage its monetary policy amidst stabilizing Balance of payments (BoP).

Key quotes

“India’s balance of payments (BoP) has been remarkably solid. The H1 FY21 (fiscal year ending March 2021) surplus of 4.5% of GDP was the highest in the post-global financial crisis period. Our full-year FY21 estimate of 4.0% of GDP will mark a multi-decade high.”

“This dollar deluge will recede in FY22, but only modestly. We in fact argue that India’s BoP is structurally rising and is also becoming more stable.“

“These surpluses have diminished the economy’s vulnerability to external shocks. At the same time, it has complicated the management of the monetary policy.”

“Juggling between ensuring a competitive currency via intervention, calibrating onshore liquidity and supporting the government borrowing programme has been particularly challenging for the Reserve Bank of India (RBI). Our BoP estimates imply that this challenge will not disappear anytime soon.”