Reserve Bank of India (RBI) Deputy Governor Subir Gokarn today hinted at responding to the continuing surge in capital inflows if it leads to any disruptions.
"Our view is that when we see signs of disruptions caused by (excessive) capital inflows and impact on domestic market exchange rate, that's the basis to respond," Gokarn, whose remit is monetary policy, said at the Private Equity International India Forum meeting here.
The comments come a day after Finance Minister Pranab Mukherjee ruled out any move to control overseas fund flows for now in an interview to a private business channel.
These comments also assume significance as the central bank has been keeping off the forex market since the past seven months, point out treasury analysts.
Gokarn said the excessive flows into emerging countries is becoming a global problem because of the imbalance. "It (the capital inflows) is emerging as a potential threat and we are clearly thinking about ways to deal with it," he said.
The country has received nearly $20 billion funds from FIIs into equities alone this year-which is $2 billion more than their previous record last fiscal -- which some feel is a cause of concern. The worries stem from a potential scenario of flight of capital out of the domestic markets and the appreciation in the rupee, which would make our exports lose its competitiveness.
The rupee has been on the rise in the recent past and on Monday had hit a five month high of Rs 44.23 -- the highest level since April 15. The local unit surged 4.3 per cent in the past month. But the rupee declined today to 44.70 against the greenback.
