Volatile capital flows may pose policy challenges: RBI
Mumbai: The Reserve Bank said rapid and
volatile capital flows could present significant policy
challenges, potentially leading to exchange rate overshooting,
asset-price volatility and financial instability.
"Appropriate and pragmatic use of capital account
regulations may have to be considered by the emerging markets
to maintain financial stability," Reserve Bank deputy governor
Shyamala Gopinath said here today.
The Reserve Bank, which is slated to announce its
quarterly policy on January 29, is widely expected, on the
back economic recovery and the spiralling food inflation, to
hike the cash reserve ratio or the amount the banks park with
the apex bank, to suck out excess liquidity from the system.
She said the central bank is closely monitoring the
liquidity conditions in the system. "We are closely monitoring
the situation. We need some patience. We are reviewing the
monitory policy in this month," Gopinath said.
The RBI is also monitoring the volatility in the
rupee-dollar market and has not observed any major concerns
taking into account the current signals. "We don?t really look
at the levels, but only the volatility. There are no major
concerns over the inflows so far," Gopinath said.
In its bid to enhance liquidity in the bond market, the
Reserve Bank is likely to come with the guidelines for
repurchase agreements (repos) on corporate bonds as early
as this month, she said.
Gopinath said the RBI is currently working on the
guidelines to introduce repos in corporate bonds and expects
to announce the guidelines this month.
"We need proper regulatory framework for corporate
bonds repos...we are going to allow on OTC basis, we expect to
come with the guidelines before the January policy," Gopinath
Allowing repos in corporate bonds will provide more
liquidity and improve traded volumes in the debt market,
enabling banks to borrow against their investments in
To begin with, the apex bank plans to start only with
highly rated bonds, Gopinath said. Though the foreign
institutional investors have been allowed to invest up to USD
15-bn in corporate bonds, the actual utilisation remains very
low, she said.
Referring to banks` investment in finaical instruments of
mutual funds companies, Gopinath said RBI is assessing the
"We are getting information...we are trying to get a
clear understanding of the situation. Then only we can
determine whether to take an action or not," Gopinath said.
The apex bank is in the advanced stages of introducing
other currency pairs for currency futures and are examining
the issue of allowing plain vanilla currency options in
consultation with the market regulator Sebi.
"We are in advanced stage. Internally agreed on what
would be the position limits for each currency pair for
trading members and non-trading members...We expect to do it
before the policy," Gopinath said.
More from India
More from World
More from Sports
More from Entertaiment
- DNA: APJ Abdul Kalam's last journey, India bids a tearful adieu
- DNA : Justice delivered; India hangs 1993 Mumbai blasts convict Yakub Memon
- Yakub Memon hanged in Nagpur jail
- 'People's President' APJ Abdul Kalam laid to rest in Rameswaram
- Panel discussion on 1993 Mumbai blasts convict Yakub Memon's hanging
- Yakub Memon's body handed over to family, tight security in Mumbai
- Yakub Memon: The two men who lead police to 'House of Memons'
- Meeting called by Speaker fails to end Parliament logjam; government indicates all-party meet
- Rajnath slams UPA for coining 'Hindu terrorists', Congress accuses BJP of playing politics on terror
- Why did you choose Smriti Irani as HRD minister? Congress leader asks PM Narendra Modi