Reserve Bank of India on Tuesday said it expects about $20 billion outflows from FCNR-B deposits redemptions, which may create some short-term dollar shortages but Governor Raghuram Rajan assured that the central bank has enough dollars to meet any sharp market volatilities.
"There could be outflows of $20 billion or so (due to the FCNR-B deposit redemptions).
“We have covered these outflows in the forward markets and before the maturity of the deposits we will take some advance deliveries leading up to the maturity," Rajan told reporters after announcing the second bi-monthly policy of the fiscal.
Explaining why he expects some volatility and greenback shortages, the governor said, "Some counterparties with whom we have contracts with are apprehensive that they may not be able to deliver easily on the dollars that we are owed and hence there may be some episodes of dollar shortages in the market going forward."
Rajan, however, was quick to add that RBI will work to ensure there are no problems due to any volatilities by supplying dollars from the over $360 billion reserves.
"We have enough dollars for any eventuality.
“We will supply dollars in case of extreme volatility," Rajan assured.
“When the rupee had a freefall due to the 'Fed tantrums' in the summer of 2013, when it plumbed to a lifetime low of 67.85, the country had mobilised $26 billion through foreign currency non-resident bank account deposits by offering a special swap window for banks.
The three-year deposits are maturing starting September.
Rajan on Tuesday said he expects there would be outflows of $20 billion because of the maturing process as people have borrowed money to invest in the FCNR-B deposits.
"We have covered these outflows in the forward markets and before the maturity of the deposits, we will take some advance deliveries leading up to the maturity.
“But no one should take this for granted," he said adding some of these counterparties in the forward markets are apprehensive if they will be able to honour their commitments.
Deputy Governor H R Khan said the RBI is committed to manage the rupee and dollar liquidity and also contain the volatility.
"There can be some small problems which can come up, but there will not be any system-wide issue because of the forwards. There can be petty problems, but we have enough resources to take care of those," Khan said.
Rajan also made it clear that the central bank will also take care of the domestic rupee liquidity as this episode plays out.
The image is used for representational purpose only. Photograph: Yusuf Ahmad/Reuters
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