Liquidity Problem For RBI? Pranjul Bhandhari Highlights The Likely Next Steps For Central Banker

By NDTV Profit

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Foreign Currency Non-Resident (Bank), or FCNR(B), deposit inflows have comfortably beaten estimates, leaving the Reserve Bank of India (RBI) with a fresh problem of its own making, too much liquidity sloshing around the banking system. According to Pranjul Bhandari, Chief India Economist at HSBC, the central bank will need to pull out Rs 6-7 lakh crore over the next 10-15 days to stop the surplus from turning inflationary. "So many dollars came in, I think domestic banking sector core liquidity could go to about 14-15 lakh crore in the next couple of days. That's a very strong number," Bhandari told NDTV Profit. The same wave of dollars has pushed up the country's foreign exchange reserves, which Bhandari expects to be "just short of $800 billion dollars" by mid-September. She said the RBI has "shown the intent that it wants to spend these dollars to stabilise the currency or even strengthen it," giving the central bank room to manage the rupee and the liquidity overhang at the same

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