RBI is keeping a Vigil on Capital Inflows

13 December 2009

The Reserve Bank of India (RBI) allayed concerns about
 capital inflows building an asset bubble and said it
is keeping a vigil on these.

“If there is too much liquidity, it has the potential
for asset price build-up,” RBI Governor D Subbarao said.
However, “every asset price build-up need not necessarily
result in a bubble”, he told reporters after a meeting of
RBI’s central board of directors here.

Subbarao said that capital inflows were in line with the
country’s requirement. The surge in capital Capital
Inflowflows was not like as what happened between 2006-08,
 he said, adding “If and when there is excess of capital flows,
 we will have to respond to that situation.”

Subbarao said it was not possible at this point of time to
speculate on what if anything the apex bank would do to contain
the quantum of capital inflows.

The RBI yesterday tightened the guidelines for corporates
raising resources from external commercial borrowings.

Subbarao said corporates were now able to raise resources
 from non-debt sources. On loan growth, Subbarao said that
credit offtake would grow. He said non-food credit demand
 had grown by 10.4 per cent.

On the ECB guidelines, Deputy Governor Shyamala Gopinath
said these were relaxed during the time of economic crisis.

“Spreads had gone up at that point of time.” But with things
coming back to normal, the spreads had now narrowed.
“So we have reverted to what was there prior to the relaxation,”
Gopinath said.