 "EMs near bull market, India lags")
The Reserve Bank of India (RBI) on Wednesday said it is fully prepared to contain market volatility as well as address liquidity needs when foreign currency non-resident (banks) deposits start maturing in September this year.
Banks had raised nearly $34 billion between September and November 2013, out of which $27 billion was through FCNR (B) deposits maturing mostly in three years. Banks, then, swapped those dollars with the RBI. The central bank thereafter readied itself by buying forwards dollar.
The swaps and the forwards will take care of the dollar requirement and should be neutral for the reserves. However, banks should witness deposit base depletion and some rupee liquidity will be strained. RBI in its first bi-monthly monetary policy had said it was prepared for those.
On Tuesday, RBI reiterated that and said it would take “all necessary measures to even out the resultant rupee liquidity gaps through use of appropriate instruments”.
Assuring the market that the swaps are adequately covered by RBI’s forward purchases, the central bank, however, cautioned that the foreign exchange reserve could see some dip in the interim as the swaps and forwards are not timed perfectly.
“It is also pertinent to mention that the forward purchases and the FCNR(B) swaps are not exactly synchronous in terms of maturity bands. Since the forward purchases are largely front-running the FCNR(B) swaps with regard to maturity, the foreign exchange reserves will, in all likelihood, witness significant accretions initially to be followed by depletions of more or less similar magnitude around the time these deposits mature.”
The central bank added that it was closely monitoring the ongoing market developments.
