rupee jump to push indias central bank to use rare cash tool
Last Updated : GMT 06:49:16
Arab Today, arab today
Arab Today, arab today
Last Updated : GMT 06:49:16
Arab Today, arab today

Rupee jump to push India's central bank to use rare cash tool

Arab Today, arab today

Arab Today, arab today Rupee jump to push India's central bank to use rare cash tool

Reserve Bank of India
Mumbai - Arab Today

The rupee’s surge and a banking system awash with funds will shift focus to a little-used tool in the Indian central bank’s arsenal before next month’s policy review.

The Reserve Bank of India (RBI) may consider raising the cash reserve ratio (CRR) for the first time since 2010 if deposits accumulated due to November’s cash ban don’t flee over the coming months, economists say. Banks are holding a near-record Rs5 trillion ($76 billion) of surplus cash, according to the Bloomberg Intelligence India Banking Liquidity Index, limiting the RBI’s ability to buy dollars and curb rupee gains to avoid further increasing liquidity. 

This complicates matters for Governor Urjit Patel, who shifted the monetary stance to neutral last month from accommodative as inflation accelerates. A stronger rupee would help rein in price pressures but runaway gains could slow a recent export recovery by making shipments less competitive.

"If the surplus liquidity that we are seeing becomes more of a permanent nature, we can see the RBI resort to a cash reserve ratio hike," said Indranil Pan, chief economist at IDFC Bank in Mumbai. He, however, does not expect such an increase at the RBI’s April 6 review.

The CRR is the amount of deposits banks need to maintain as reserves. It was last raised in 2010 when India saw record foreign inflows into its stock market.

This time the influx is homegrown: bank deposits have surged since November after Prime Minister Narendra Modi’s clampdown on cash. Some of the money could be converted back into cash since the RBI removed withdrawal restrictions last week, but the country’s largest bank estimates that as much as half of it could stay back.

While the RBI has been using a slew of instruments including reverse repo operations and cash management bills to sterilise the inflows, these come at a cost. Citigroup estimates the government will spend Rs60 billion in the year through March to pay interest and any more steps by the RBI to absorb the cash risk lowering its dividend to the government.

The CRR, on the other hand, is interest-free.

"A hike in the cash reserve ratio could once again become an option if the surplus liquidity conditions persist," Samiran Chakraborty, chief economist for India at Citi, wrote in a March 7 report.

RBI’s challenge

The rupee has gained about 2 per cent to a 16-month high in March after Modi’s landslide state election win, outperforming its Asian peers and all but five of the world’s emerging-market currencies. Patel had said last month that the currency is broadly where it should be and that the RBI intervenes only to curb volatility.

"Rupee liquidity does constrain RBI’s intervention," Shashank Mendiratta, Bengaluru-based economist at Australia & New Zealand Banking Group, said in an email.

India will attract $55 billion in capital flows in the year through March 2018, part of which the RBI will mop up to boost foreign-exchange reserves by $20 billion, according to Deutsche Bank. The intervention will weaken the rupee to 67.5 per dollar by the end of December from about 65.5 per dollar on Friday, the bank predicts, though this is much stronger than its previous estimate of 70 per dollar.

"We expect the RBI to continue managing volatility," Kaushik Das, India economist at Deutsche Bank, wrote in the report.

Source :Times Of Oman

arabstoday
arabstoday

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

rupee jump to push indias central bank to use rare cash tool rupee jump to push indias central bank to use rare cash tool

 



Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

rupee jump to push indias central bank to use rare cash tool rupee jump to push indias central bank to use rare cash tool

 



GMT 16:16 2014 Wednesday ,10 September

Samirah Ibrahim receives Saudi cultural attaché

GMT 09:32 2017 Sunday ,24 September

China confirms will limit oil exports to North Korea

GMT 19:56 2016 Saturday ,17 September

Typhoon Meranti death toll rises to 28

GMT 09:40 2018 Monday ,01 January

OIC Summit opens in Kazakhstan

GMT 06:37 2015 Monday ,07 December

Iran film directors protest colleague's jail term

GMT 18:37 2017 Friday ,25 August

Mental health issues should be prioritized

GMT 04:39 2017 Thursday ,31 August

Trump vows to right 'self-destructive' tax code

GMT 05:29 2017 Tuesday ,22 August

Celebrations across India on 71st Independence Day

GMT 10:54 2017 Wednesday ,11 October

Child obesity grows tenfold since 1975

GMT 02:31 2016 Tuesday ,06 December

Dubai Women Establishment delegation participates

GMT 04:29 2018 Wednesday ,19 September

North and South Korea: Kim and Moon hail new future

GMT 14:18 2013 Monday ,19 August

Newlywed Lebanese couple pose at car bomb site

GMT 11:11 2011 Friday ,12 August

Palestinian university ranks seventh in Arab world

GMT 15:16 2015 Wednesday ,26 August

UAE ambassador attends charity ceremony in Qalubiya

GMT 16:59 2016 Tuesday ,26 July

Hedge funds in new cycle of oil short-selling
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube

Maintained and developed by Arabs Today Group SAL.
All rights reserved to Arab Today Media Group 2021 ©

Maintained and developed by Arabs Today Group SAL.
All rights reserved to Arab Today Media Group 2021 ©

arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday