Reserve Bank of India (RBI) Governor Sanjay Malhotra announced on Friday that the central bank's recent record foreign-currency deposit drive is expected to generate significant additional income. Malhotra emphasized that the initiative is designed to be profitable for the RBI, rather than incurring costs.
The Governor detailed that the dollars raised through this deposit program would be strategically invested in government securities overseas. This approach allows the RBI to earn interest income, contributing positively to its revenues. "Net, net, it will only result in additional revenues, additional income" for the central bank, Malhotra stated in an interview, underscoring the financial benefits.
Malhotra also addressed concerns regarding the potential for surplus liquidity arising from robust foreign-exchange inflows. He assured that the RBI is well-equipped with multiple instruments to absorb any excess liquidity in the financial system. These tools include Open Market Operations (OMOs), currency swaps, and variable reverse repo auctions.
The central bank's objective in managing this liquidity is crucial: to prevent a rise in banking-system liquidity from exerting downward pressure on borrowing costs, which could potentially fuel inflationary pressures and diverge from the RBI's monetary policy stance. Malhotra affirmed, "Nothing is off the table" when it comes to employing these measures.
India recently attracted a record $127 billion from its large overseas community, exceeding initial estimates and bolstering the nation's foreign exchange reserves. Combined with other programs, the total foreign-currency fundraising had reached over $136 billion by August. While the deposit program concluded earlier than scheduled, foreign-currency loans remain available for companies through December.
Regarding economic growth, Malhotra highlighted India's robust first-quarter expansion, which saw a 7.8% GDP increase in the April-June period. This growth was primarily supported by strong private consumption, investment, and exports. The Governor noted that the RBI was not entirely surprised by the stronger-than-expected data, given positive incoming corporate information. The upcoming festive season, extending through Diwali, is also anticipated to further bolster consumption and overall economic growth.