RBI LOOKING AT WAYS

TO MANAGE INFLOWS
Gokarn’s comments come after FM says there
is no need to restrict tide of foreign capital
BS REPORTER it could easily be financed and
Mumbai, 5 October is not a cause for concern. The
current account deficit has risen
he Reserve Bank of three times to $13.7 billion in

T India (RBI) may

consider measures
to deal with foreign
institutional investor
(FII) inflows, which are emerg-
ing as a potential threat, said
the central bank’s Deputy Gov-
the quarter to June, over the
corresponding period of the
previous year.
“As long as the capital flows
are in excess of the current ac-
count deficit, the pressure to
appreciate will continue and it
ernor, Subir Gokarn, in Mum- could potentially disrupt,”
bai today. His comments came ‘It is becoming a larger Gokarn said.
a day after Finance Minister global problem because of The senior central bank of-
Pranab Mukherjee said there the imbalance — there is so ficial also said policy-tighten-
was no need for restrictions on much of liquidity and the ing efforts by RBI since Janu-
foreign inflows, in an interview ary have moderated inflation,
with a television channel. returns are skewed towards but it still remains above the
FIIs have invested a record emerging markets’ comfort zone, and is a concern.
$19.9 billion in Indian equity SUBIR GOKARN “The sharp deceleration (in
this year, of which around a third RBI Deputy Governor inflation) in recent months may
has poured in since the start of reflect the impact of monetary
September, thereby exerting an actions and gives us confidence
upward pressure on the rupee. of liquidity and the returns are that the inflation rate will mod-
Overseas funds bought $9.9 bil- skewed towards emerging mar- erate significantly by the end
lion worth of Indian bonds in kets,” Gokarn said at a semi- of the fiscal year 2010-11,”
2010. On Monday, the domes- nar. “So, it is emerging as a po- said Gokarn.
tic currency strengthened to tential threat and we are clear- Since January, RBI has
a five-and-a-half-month high ly thinking of ways in which raised policy rates by 125-175
on sustained foreign portfolio we can deal with it.” basis points, and banks’ cash
investments and gains in other Planning Commission reserves by 100 bps to 6 per
regional peers. Deputy Chairman Montek cent. It expects headline infla-
“It is becoming a larger glob- Singh Ahluwalia on Monday tion to come down to 6 per cent
al problem because of the im- said though the current account by March end.
balance — there is so much deficit is wider than expected, Turn to Page 4