 "Regulator has enough firepower to manage FCNR (B) deposit outflows, says Rajan")
Assuaging fears over the effect of outflows from Foreign Currency Non-Resident (B) or FCNR (B) deposits, the Reserve Bank of India (RBI) said on Tuesday it has covered in the forward markets to get dollars to meet obligations and had ample reserves to curb excess volatility.
RBI Governor Raghuram Rajan said the outflows from maturity of FCNR (B) deposits, a kind of deposit made by non-resident Indians with banks, could be to the tune of $20 billion.
RBI has covered in the forward markets, and would take some advance deliveries in the lead up to the maturation of the deposits.
These foreign exchanges resources were raised in 2013 to bolster India's foreign exchange reserves and also contain the volatility of rupee then. The swaps and the forwards would take care of the dollar requirement and should be neutral for the reserves.
Rajan said some counterparties were apprehensive that the regulator wouldn't be able to deliver easily on the dollars, and hence there could be some dollar shortage in the market. "This is something that we will monitor. We may supply dollars in case of extreme volatility, but no one should take this for granted. We are, however, committed to supply short-term rupee liquidity to the extent needed, to support our monetary stance," the RBI governor said. "As far as RBI's ability to act, there should be no question. But, the regulator does not want to encourage complacency on the part of people who have sold us dollars assuming that we will come in if they can't provide the dollars to us and bail them out. That is not the intent at all."
RBI will monitor both dollar and rupee liquidity and act appropriately. "Rupee liquidity we will always provide what the market requires. We are committed to that," the governor said, adding, "We have no desire to move the rupee in any direction. At the same time if people have contracted to supply us dollars, all we are saying is that they shouldn't rely on us bailing them out and us supplying them the dollars that they are going to supply us. They should be a little careful, they should enter into appropriate contracts."
RBI Governor Raghuram Rajan said the outflows from maturity of FCNR (B) deposits, a kind of deposit made by non-resident Indians with banks, could be to the tune of $20 billion.
RBI has covered in the forward markets, and would take some advance deliveries in the lead up to the maturation of the deposits.
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Banks had raised nearly $34 billion between September and November 2013, of which $27 billion was through FCNR (B) deposits, maturing mostly in three years. Banks, then, swapped those dollars with RBI. The central bank thereafter readied itself by buying dollars in the forwards market.
These foreign exchanges resources were raised in 2013 to bolster India's foreign exchange reserves and also contain the volatility of rupee then. The swaps and the forwards would take care of the dollar requirement and should be neutral for the reserves.
Rajan said some counterparties were apprehensive that the regulator wouldn't be able to deliver easily on the dollars, and hence there could be some dollar shortage in the market. "This is something that we will monitor. We may supply dollars in case of extreme volatility, but no one should take this for granted. We are, however, committed to supply short-term rupee liquidity to the extent needed, to support our monetary stance," the RBI governor said. "As far as RBI's ability to act, there should be no question. But, the regulator does not want to encourage complacency on the part of people who have sold us dollars assuming that we will come in if they can't provide the dollars to us and bail them out. That is not the intent at all."
RBI will monitor both dollar and rupee liquidity and act appropriately. "Rupee liquidity we will always provide what the market requires. We are committed to that," the governor said, adding, "We have no desire to move the rupee in any direction. At the same time if people have contracted to supply us dollars, all we are saying is that they shouldn't rely on us bailing them out and us supplying them the dollars that they are going to supply us. They should be a little careful, they should enter into appropriate contracts."