RBI keeping sharp eye on capital inflows: dy governor
05 Jan 2010
The Reserve Bank of India is not unduly worried about the surge in capital inflows over the last few months, but said rapid and volatile capital flows could present significant policy challenges, potentially leading to exchange rate overshooting, asset-price volatility and financial instability.
"Appropriate and pragmatic use of capital account regulations may have to be considered by the emerging markets to maintain financial stability," Shyamala Gopinath, one of the RBI deputy governors, said at a function in Mumbai today.
"So far, there have been no major concerns on inflows," Gopinath said on the sidelines of a Fixed Income & Money Market Dealers association (FIMMDA) conference. "We don't look at the levels (of the rupee), but only the volatility," she said.
She said the central bank is closely monitoring the liquidity conditions in the system. "We are closely monitoring the situation. We need some patience. We are reviewing the monitory policy in this month," Gopinath said.
In its bid to enhance liquidity in the bond market, the RBI is likely to come with the guidelines for repurchase agreements (repos) on corporate bonds as early as this month, she said, adding that the RBI is currently working on guidelines to introduce repos in corporate bonds, and expects to announce the guidelines this month.
"We need proper regulatory framework for corporate bonds repos ... we are going to allow on OTC basis, we expect to come with the guidelines before the January policy," Gopinath said. The RBI is expected to release its latest monetary policy guidelines on 29 January.
