Bloomberg News

India RBI May Consider Purchasing Dollars to Ease Cash Shortage

February 14, 2012

Feb. 2 (Bloomberg) -- The Reserve Bank of India may consider purchasing dollars to ease a shortage of liquidity in the banking system in addition to buying government securities, Deputy Governor Subir Gokarn said in an interview.

“To the extent that pressure remains, we are always open to carrying out further open market operations,” Gokarn said. “The other form of liquidity infusion is to buy up dollars. If circumstances are right, we’ll certainly consider it. When we’ll have those circumstances is difficult to say.”

Lenders’ borrowing from the monetary authority averaged 1.3 trillion rupees this week, more than double the 600 billion rupees “comfort zone” indicated by the Reserve Bank at its policy review on Jan. 24. The RBI has bought 719 billion rupees of notes since November to ease a cash squeeze in the banking system.

The central bank on Jan. 24 reduced the cash reserve ratio by 50 basis points to 5.5 percent from 6 percent to tackle the shortage of liquidity in the banking system.

--Editors: Abhay Singh, Arijit Ghosh

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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