{"id":158406,"date":"2022-01-04T20:29:46","date_gmt":"2022-01-04T14:59:46","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=158406"},"modified":"2022-01-04T20:29:46","modified_gmt":"2022-01-04T14:59:46","slug":"forex-party-is-ending-on-us-fed-balance-sheet-tapering","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/forex-party-is-ending-on-us-fed-balance-sheet-tapering\/","title":{"rendered":"Forex party is ending: ON US Fed Balance Sheet Tapering"},"content":{"rendered":"\n

News:<\/span><\/b>\u00a0US Federal Reserve (Fed) is increasing the speed of balance sheet tapering.\u00a0<\/span>\u00a0<\/span><\/p>\n

As mentioned in the news,\u00a0US Federal Reserve (Fed) will double the pace of its balance sheet tapering and end its net asset purchases by\u00a0mid-March\u00a02022.\u00a0<\/span>\u00a0<\/span><\/p>\n

Balance sheet tapering means<\/span><\/b>\u00a0gradual slowing of the pace of the Fed\u2019s large scale asset purchases, which was aimed at providing monetary stimulus to the economy.\u00a0It may also lead to\u00a0increase\u00a0in interest rates.\u00a0<\/span>\u00a0<\/span><\/p>\n

US balance sheet policies always have a major effect on the economies of emerging countries.\u00a0When US cuts interest rates and expands balance sheet,\u00a0it triggers capital inflows, local currency appreciation and higher asset prices\u00a0in emerging markets.<\/span>\u00a0<\/span><\/p>\n

Why India is better prepared against any ill-effect of US balance sheet taper?<\/span><\/b>\u00a0<\/span><\/p>\n

Unlike 2013 taper,\u00a0this time the affect will not be substantive\u00a0in India, due to the following reasons:\u00a0<\/span>\u00a0<\/span><\/p>\n

First,<\/span><\/b>\u00a0federal reserve has communicated its intentions a bit early this time. It has provided some time to the economies, to be prepared.<\/span>\u00a0<\/span><\/p>\n

Second,<\/span><\/b>\u00a0India is less vulnerable to external vulnerabilities now. It is because Rupee is not overvalued, as was the case in 2013.\u00a0Also, India\u2019s current account is in surplus and Foreign Currency reserve currently cover nearly 12 months of imports.<\/span>\u00a0<\/span><\/p>\n

Third,\u00a0<\/span><\/b>basic balance of payments (BBOP) is in\u00a0surplus\u00a0(BBOP is the sum of current account and net FDI inflows).\u00a0<\/span>\u00a0<\/span><\/p>\n

What are the causes of concern?<\/span><\/b>\u00a0<\/span><\/p>\n

However,\u00a0there are also, reasons of concern:\u00a0<\/span>\u00a0<\/span><\/p>\n

–<\/span>The Current Account trend\u00a0<\/span><\/b>is changing. Merchandise trade deficit is widening.\u00a0<\/span>\u00a0<\/span><\/p>\n

–<\/span>Higher commodity prices<\/span><\/b>\u00a0such as crude oil, metals,\u00a0etc.,\u00a0and improvement in domestic demand\u00a0is increasing India\u2019s import bill.<\/span>\u00a0<\/span><\/p>\n

–<\/span>Gold imports<\/span><\/b>\u00a0have surged over the last year, rising to $55 billion in the 12 highest since 2013.\u00a0<\/span>\u00a0<\/span><\/p>\n

–<\/span>India\u2019s BBOP<\/span><\/b>\u00a0is going into deficit\u00a0from surplus.\u00a0<\/span>\u00a0<\/span><\/p>\n

–<\/span>High relative inflation<\/span><\/b>, compared to competitor Asian countries can erode\u00a0it\u2019s\u00a0export competitiveness.<\/span>\u00a0<\/span><\/p>\n

Source:<\/span><\/b>\u00a0This article developed based on the article\u00a0<\/span>\u201cForex party is ending: ON US Fed Balance\u00a0Sheet Tapering\u201d<\/span><\/b>\u00a0in\u00a0<\/span>Times of India<\/span><\/b>\u00a0on\u00a0<\/span>4<\/span><\/b>th<\/span><\/b>\u00a0January 2022<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

News:\u00a0US Federal Reserve (Fed) is increasing the speed of balance sheet tapering.\u00a0\u00a0 As mentioned in the news,\u00a0US Federal Reserve (Fed) will double the pace of its balance sheet tapering and end its net asset purchases by\u00a0mid-March\u00a02022.\u00a0\u00a0 Balance sheet tapering means\u00a0gradual slowing of the pace of the Fed\u2019s large scale asset purchases, which was aimed at… Continue reading Forex party is ending: ON US Fed Balance Sheet Tapering<\/span><\/a><\/p>\n","protected":false},"author":10323,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[212,10496],"class_list":["post-158406","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-2","tag-times-of-india","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704702133},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/158406","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10323"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=158406"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/158406\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=158406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=158406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=158406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}