Abstract

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• In this watch we focus on China’s lack of clarity and policy mis-steps in managing its exchange rate, which has often, in the past, unnerved investors and led to significant capital outflows from the economy. While Chinese policymakers remain cognizant of such risks and are taking various steps to address them, we examine whether past or current measures adopted by Indian policymakers to stem similar risks can be considered by China as a point of reference in its domestic policy toolkit.
• Chinese policymakers could take cues from the Reserve Bank of India (RBI) in enhancing clarity and credibility in its monetary policy approach. RBI’s FX interventions are mainly done to curb excessive currency volatility rather than target a specific level of the rupee – a currency objective that RBI has consistently maintained for several years now, which in turn has helped build investor trust.
• Amongst several past measures to boost foreign capital inflows, RBI’s credible Non-Resident Indian (NRI) Deposit scheme during the 2013 Quantitative Easing (QE) taper tantrum​