INDIAN RESERVE BANK CRIES OUT AS INSTABILITY LOOMS

INDIAN RESERVE BANK CRIES OUT AS INSTABILITY LOOMS

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People walk in front of the Reserve Bank of India (RBI) building in Kolkata May 21, 2012. The rupee fell below the key psychological level of 55 to hit a new record low on Monday, setting up the prospect of further falls unless the central bank takes measures or intervenes more aggressively, traders said. REUTERS/Rupak De Chowdhuri (INDIA - Tags: BUSINESS) - RTR32EK3

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INDIAN RESERVE BANK CRIES OUT AS INSTABILITY LOOMS

– RBI plans ahead of looming fluctuation

INDIAN RESERVE BANK CRIES OUT AS INSTABILITY LOOMS

 

RBI Cries out Fluctuations in FOREX
Governor  Raj

The Reserve Bank of India has warned that the Forex reserves of the country will be unstable in the first half of fiscal year 2017 (FY17). As put by the RBI, the initial months will  witness some soar, but after September, things would change.

 

However, the RBI has said that measures are being taken to realize liquidity when special deposits under a foreign currency scheme appear for redemption.

According to Indian Times, the dollar deposits – amounting to nearly $26 billion – were raised in September 2013 under a special three-year foreign currency non-resident (FCNR-B) scheme to support the rupee.

Hence, to ensure that there are enough dollars to meet redemption, the RBI has been making purchases in the forward market. But since the delivery date of the dollars are ahead of the redemption of deposits, the RBI’s Forex reserves will briefly soar from the present level of around $360 billion.

INDIAN RESERVE BANK CRIES OUT AS INSTABILITY LOOMS

Following the circular of the RBI, “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 depletion of more or less similar magnitude around the time these deposits mature.”

“The Reserve Bank is actively monitoring the ongoing market developments and is in readiness to contain the associated market volatility, if any, in relation to completion of swap transactions as well as the concomitant changes in rupee liquidity. Further, the bank will take all necessary measures to even out the resultant rupee liquidity gaps through use of appropriate instruments.” The RBI added.

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In tandem with the words of  Rajan, the governor of the bank, there is no proposal to try and retain the deposit with a new scheme.

INDIAN RESERVE BANK CRIES OUT AS INSTABILITY LOOMS

“If they want to roll it over, they will. Our estimate is that the scheme came with a lot of borrowed money. We are expecting a very low renewal because we are not going to offer the same favorable terms again. The good news is we are fully prepared for whatever exit takes place and we will monitor market conditions. We do not anticipate much volatility,” He emphasized.