The cost that the central bank incurs due to its operations is not the focus, but the overall benefit that accrues to the economy is key, Reserve Bank of India (RBI) Governor Sanjay Malhotra said during the post-policy media interaction.
While answering a question on imposing a cash reserve ratio on banks because it is the least-cost option for the RBI, Malhotra said, “When you talk about cost to the Reserve Bank, I think we need to look at cost to the economy and the benefits to the economy.”
Questions were raised after the RBI opened a concessional swap window to attract foreign currency non-resident (bank), or FCNR(B), deposits in June. Banks mobilised a massive $133 billion in such deposits, which have a leverage facility.
“These FCNR(B) deposits also raised some questions on the cost to RBI. That is not our primary motive. I would like you to look at to the overall benefits to the economy,” Malhotra said.
There has also been commentary that the RBI’s surplus transfer to the government will be affected by the cost incurred for the concessional swap facility.
“Profit or the surplus (to RBI) is incidental (of RBI operations). Primary purpose is how do we feel the economy as a whole will be impacted as a result of our measures,” he said.
On the issue of imposing a cash reserve ratio (CRR) on banks, Malhotra said he would not rule out anything. CRR is the proportion of deposits that banks need to keep with the central bank as cash, for which they do not earn interest.
