To Tackle Exchange Rate Volatility, India Needs Foreign Exchange Buffer Reserves As We Have No Friends – Raghuram Rajan, Former RBI Governor

File Picture

India needs foreign exchange buffer reserves to insulate itself from exchange rate volatility as we have “no friends” for swap lines and Japan was the only country that helped during the taper tantrum in 2013, said former RBI Governor Raghuram Rajan .

Participating in a virtual event organised by economic think tank NCAER, Rajan said during the taper tantrum in 2013, India asked for swap lines, and only country who helped us was Japan.

“We need this (foreign exchange) reserve buffer to insulate ourselves because we have no friends. Even the European Union (EU) went to get swap lines from the Federal Reserve.

“We asked for swap lines, that is on public record, we did not get them. Only country who helped us during the taper tantrum was Japan,” he said.

Taper tantrum refers to emerging markets facing inflation woes and other issues after the US Federal Reserve decided to put brakes on its quantitative easing programme in 2013. The programme was started to deal with the fallout of the 2008 global financial crisis.

“So when you have no external support, you have to build your own support, which is why we started building the reserve buffer,” Rajan said, adding that what happened during the taper tantrum was a traumatic experience for many who went through it.

Rajan noted that he can’t see an Indian government going to the IMF and say I need a contingent plan, even though, to the IMF”s credit, it said frequently. “This should not be a source of stigma,” he opined.