RBI prepared to meet IMD redemption: Governor

Reserve Bank of India deputy governor Rakesh Mohan on Monday said he did not see any liquidity crunch in the system and that the central bank was fully prepared to meet outflows due to the India Millennium Deposits redemption late in December.

"We have adequate means to manage liquidity in the system," Mohan told reporters on the sidelines of a seminar on global competitiveness of India and China.

Mohan said he did not foresee problems in financing the government's borrowing programme in the remaining part of the current financial year to March.

"We have a market stabilisation scheme and liquidity adjustment facility, which have been designed to manage liquidity. So, I don't see any particular problem in financing (government's) market borrowing given that there is so much liquidity available under MSS," Mohan said.

The government is scheduled to borrow Rs 24,000 crore between January 3 and February 22. Its gross borrowing plan for the current fiscal is Rs 1.39 trillion.

The central bank deputy governor said there was outstanding amount of over Rs 60,000 crore under the market stabilisation scheme, which was introduced last year to mop up excess liquidity in the system. There are fears that liquidity will be drained when $7 billion IMDs are redeemed on December 29.

The State Bank of India had issued the IMDs to non-resident Indians five years ago.

Mohan said the RBI is in continuous dialogue with banks to manage IMD outflows. "I don't see IMD outflows impacting foreign exchange and bond markets," he said. "We are fully prepared for redemption of IMD and all arrangements are in place."

On interest rates, Mohan said the central bank did not favour any particular level of interest rates. Interest rates must reflect the cost of funds and market conditions, he added. Mohan said there was no change in RBI's year-end inflation target of 5.0-5.5 per cent.

For the week ended November 26, India's inflation rate, as measured by the Wholesale Price Index, was 4.54 per cent compared with 4.32 per cent a week earlier.