The US Government shutdown may delay the Federal Reserve’s taper to January from December and this may give the RBI Governor, Raghuram Rajan, some more time to raise forex, says Indranil Sen Gupta, Economist, Bank of America Merrill Lynch.
The RBI may get time to ease FII debt limits to list INR gilts in an EM bond index to attract benchmark funds, he says in a report to clients.
If the shutdown is withdrawn next week, there would be little impact on India, he says.
Building a scenario of what would happen if the US defaults he predicts that this could lead to a Lehman-type global collapse and slash 80 bps from the 4.6 per cent growth forecast this year.
Earlier shutdowns have shaved off about 30 bps of the US’s growth and BoAML has revised downwards its forecast for the fourth quarter growth in the US to 2 per cent from 2.5 per cent earlier.
BoAML estimates that a 1 per cent slowdown in the US growth impacts India’s growth by 50 bps, although India is among the least impacted countries. Sen Gupta expects Rajan to revert to the Jalan-Reddy practice of building up high forex reserves as insurance cover.