MUMBAI, June 28 (Reuters) – India’s $600 billion in reserves should help it fight market volatility from any U.S. monetary tightening, but analysts and traders warn a slowing economy and an expanding fiscal deficit still make it particularly vulnerable to capital flight.
Asia’s third-largest economy has bad memories of past attempts by the Federal Reserve to get away from crisis-mode policies, particularly in 2013 when mere talk of “tapering” stimulus prompted the rupee to sink to record lows.
Now, with the Fed again giving increasing thought to when it will need to reduce stimulus, India’s rupee is back under pressure, having fallen 1.8% over the past four weeks.
While India’s increased currency reserves are expected to boost resilience this time — $604 billion now compared with $270 billion in 2013 — a more gloomy economic outlook puts new pressure on the financial system.
“In 2013, there was much greater confidence about the Indian…