Source AP ©

India's central bank to further soaking-up of excess liquidity

Short-term interest rates at India's central bank remained unchanged, but it urged lenders to hold a larger share of their deposits in cash - a step aimed at soaking up excess liquidity in the banking system.

The Reserve Bank of India increased the cash reserve ratio - the proportion of deposits that commercial banks must hold in cash - from 7 percent to 7.5 percent, starting Nov. 10.

The decision came as part of a half-yearly review of monetary policy by the Reserve Bank of India. The review left key interest rates unchanged.

"The domestic conditions are as expected, both in terms of growth and stability, supply and demand," said RBI Governor Y. Venugopal Reddy. "Therefore, the status quo of monetary policy can continue, except for one, and that is liquidity."

The Indian financial system is flush with funds because a surge in foreign capital into the country.

Foreign investors have bought more than US$22 billion (15.27 billion EUR) in Indian stocks to date this year, nearly three times what they invested last year.

That money has come on top of billions of dollars (euros) in investments by private equity funds and global companies eager to seize opportunities in one the world's fastest-growing economies.

Such inflows have added to liquidity to India's banking system, and threaten to fuel inflation.

"The most important thing has been the huge liquidity, and this liquidity has been induced by large capital inflows relative to our local absorption capacity," Reddy said. "Since absorption capacity doesn't increase quickly, we have to do something about the whole situation."

The hike in cash reserve ratio, or CRR, would drain 160 billion rupees (US$4 billion; 3.3 billion EUR) from the banking system, he said.

This is the fourth time the central bank has increased the CRR this year.

Comments
Can USA and Russia reset their relationship in Helsinki or is it a waste of time?
Militant Greek atheist Alexis Tsipras betrays his people, Orthodoxy and Russia
Putin does not exclude war with Ukraine in Donbass
The Dark side of the Moon and the western political circus
The Big Brexit mistake
The Dark side of the Moon and the western political circus
The Dark side of the Moon and the western political circus
Russian Defense Minister speaks about war with Ukraine, US and fight for Crimea
Russian Defense Minister speaks about war with Ukraine, US and fight for Crimea
Serbia will recognize Kosovo only over its dead body
Serbia will recognize Kosovo only over its dead body
Putin does not exclude war with Ukraine in Donbass
Russian government readies powerful sanctions against Ukraine
Putin does not exclude war with Ukraine in Donbass
Putin does not exclude war with Ukraine in Donbass
Putin does not exclude war with Ukraine in Donbass
Russian Defense Minister speaks about war with Ukraine, US and fight for Crimea
Russian Defense Minister speaks about war with Ukraine, US and fight for Crimea
Russian Defense Minister speaks about war with Ukraine, US and fight for Crimea
Russian Defense Minister speaks about war with Ukraine, US and fight for Crimea
Russia reveals new videos of Putin's new formidable weapons being tested