RBI In­ter­ven­tion mayIn­creaseNow

The Economic Times - - Disruption: - Gay­a­tri Nayak & Saikat Das

Mum­bai: The amount of for­eign ex­change re­serves that the Re­serve Bank of In­dia keeps with over­seas banks has more than tripled, sig­nalling that it may be pre­par­ing to in­ter­vene more ef­fec­tively in the cur­rency mar­ket due to im­pend­ing volatil­ity be­cause of global fac­tors and the pos­si­ble ex­o­dus of about $30 bil­lion of non-res­i­dent In­dian de­posits.

To­tal funds parked with the over­seas branches of for­eign banks rose to $13.9 bil­lion in Fe­bru­ary from $3.5 bil­lion in April last year, ac­cord­ing to Re­serve Bank of In­dia data posted on its web­site. The cen­tral bank is­sues the in­for­ma­tion as a sig­na­tory to the In­ter na­tional Mon­e­tary Fund’s spe­cial data dis­sem­i­na­tion stan­dard, a guide to mem­ber coun­tries on putting eco­nomic data in the pub­lic do­main. The country’s for­eign cur­rency as­sets in the same pe­riod dipped from $351.9 bil­lion to $348.4 bil­lion.

“The rise in de­posit com­po­nent in re­serves sug­gests RBI may be wait­ing for the right time to in­vest in over­seas as­sets or park­ing it in high­qual­ity liq­uid as­sets for in­ter­ven­tion to man­age po­ten­tial cur­rency volatil­ity,” said Vi­jayan Subra­mani, man­ag­ing di­rec­tor, DBS Bank. “Our cen­tral bank looks for off­shore (sov­er­eign) in­vest­ment at the right level with a pru­dent mix of di­ver­si­fi­ca­tion, be it US Trea­sury or Euro­pean sov­er­eign bonds.” RBI gov­er­nor Raghu­ram Ra­jan has long warned of volatil­ity in global fi­nan­cial mar­kets be­cause of di­ver­gent mon­e­tary poli­cies with some cen­tral banks poised to nor­malise in­ter­est rates while oth­ers have taken them into neg­a­tive ter­ri­tory to free up liq­uid­ity and gen­er­ate eco­nomic ac­tiv­ity. Fur­ther­more, more than $30 bil­lion of FCNR (For­eign Cur­rency Non-Res­i­dent) de­posits that were at­tracted in 2013 to boost for­eign ex­change re­serves, are due to ma­ture this year.

The cen­tral bank seems to be pre­par­ing to de­fend the ru­pee against volatil­ity that could re­sult from this money be­ing pulled out.

“Our es­ti­mate is that that scheme came with a lot of lever­age, that banks were of­fer­ing loans to peo­ple who in­vested in that scheme and we an­tic­i­pate that will not be re­newed be­cause we are not go­ing to of­fer the same favourable terms again,’’ Ra­jan told re­porters re­cently. “So we are ac­tu­ally es­ti­mat­ing a fairly low rollover rate on the FCNR. The good news is we are fully pre­pared for what­ever exit takes place and we will mon­i­tor mar­ket con­di­tions. We think at this point that we do not an­tic­i­pate volatil­ity, but if there is, we will deal with it.’’

There have been in­stances in the past when the share of de­posits with com­mer­cial banks was higher rel­a­tive to that of se­cu­ri­ties.

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