India’s foreign exchange reserves are at a record high, but there are reasons the country should continue to worry about its currency and economy.
Economists believe international investors could start pulling out money from India if they get higher returns on US Treasury yield. Last week, the benchmark 10-year US Treasury bond yields hit a 13-month high. There are expectations that the trend of higher bond yields will continue.
If global investors sell the rupee to shift investments to the US, the Indian currency will face deterioration in value, which will make it harder for the country’s economy to recover.
“If markets price a policy mistake and US real yields surge higher, risks of a ‘taper tantrum’ rise, with India and (the) Philippines most exposed,” said a rating agency S&P Global’s report dated March 17. “Taper tantrum” is an economic term where “taper” stands for the tapering of bond-buying by the US central bank, the Federal Reserve, and…