FCNR flows to complicate liquidity management, lead RBI to deploy more tools: Economists
Higher FCNR(B) inflows are complicating the Reserve Bank's liquidity management. The banking system currently holds excess liquidity at a four-year high. Economists anticipate the RBI will deploy additional tools to absorb surplus funds. These measures may include variable rate reverse repo operations and incremental CRR hikes. Forex reserves have reached a record high of USD 729.3 billion.
Higher-than-expected inflows through the FCNR(B) window have complicated liquidity management for the Reserve Bank of India (RBI), according to economists. The additional USD 127.23 billion of deposits from the diaspora, coupled with USD 9 billion from overseas foreign currency borrowings (OFCBs), have led to a sharp increase in domestic liquidity, with the system surplus reaching Rs 9.71 lakh crore as of September 2.
To absorb the excess money, the RBI is expected to deploy more tools, such as continued variable rate reverse repo (VRRR) operations, a possible incremental cash reserve ratio (ICRR) hike, forex intervention, and forward maturities.
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