“Net, net, it will only result in additional revenues, additional income” for the central bank because the dollars can be invested in government securities abroad to earn interest, Malhotra told CNBC-TV18 in an interview.
He said the RBI had discussed the scheme with major banks and other stakeholders before launching it.
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The comments come as the central bank manages the impact of large foreign-exchange inflows and the accompanying increase in rupee liquidity. A rise in banking-system liquidity can put downward pressure on borrowing costs and make it harder for the RBI to keep monetary conditions aligned with its policy stance.
Central bank ready to drain surplus liquidity
Malhotra said the RBI would use all available instruments to remove excess liquidity from the financial system.
“We are alert to that. We have enough tools, we have tools like Open Markets Operations, swaps as necessary to withdraw surplus,” he added.
“Nothing is off the table,” the governor said.
The RBI has been using measures including variable reverse repo auctions and currency swaps to absorb surplus cash. The objective is to prevent excess liquidity from translating into lower lending rates that could contribute to inflationary pressures.
India attracted a record $127 billion through its large overseas Indian community, exceeding earlier estimates and adding to the foreign-exchange resources available to policymakers. Banking-system liquidity increased as lenders exchanged their dollars with the RBI for rupees.
The deposit programme ended a month earlier than scheduled, while companies can continue to raise foreign-currency loans through December, with these borrowings eligible for hedging at the RBI’s expense.
Together, the two programmes had brought in more than $136 billion as of August, according to the information provided. Analysts estimate that the foreign-currency fundraising could cost the RBI as much as $10.6 billion over five years.
Growth remains robust
On economic growth, Malhotra said India’s first-quarter expansion had been supported by private consumption, investment and exports. He said the RBI was not entirely surprised by the stronger-than-expected data, as incoming corporate information had pointed towards firmer growth.
“The Indian economy has weathered this shock really well,” Malhotra said.
India’s GDP grew 7.8% in the April-June quarter, according to data released last month, exceeding analysts’ expectations.
The upcoming festive season, which begins in September and extends for more than two months through Diwali, is also expected to support consumption and economic growth.
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