Raiding RBI reserves shows govts desperation ExGuv D Subbarao

first_imgMumbai: Raiding the reserves of the central bank only illustrates the “desperation” of a government, and we should be very wary and careful while determining the value of the excess reserves, warned former governor D Subbarao on Friday. The career bureaucrat-turned-central banker said he would be “ok” if a sovereign bond issue in foreign currency is done once just to test the waters, but cautioned against using the instrument regularly. “A government trying to raid the balance sheet of a central bank anywhere in the world is not a good thing. It shows that the government is desperate, he said, speaking at a CFA Society India event here. Also Read – Thermal coal import may surpass 200 MT this fiscalIn defence of his opposition to the desperate attempts to carve out the reserves, the former governor, who was at the helm during the 2008 global meltdown,said the risks undertaken by the RBI are different from other central banks and it will not be entirely beneficial to draw from international practices. The comments from Subbarao come at a time when the Bimal Jalan committee is reported to be in the final stages of finalising its report on identifying the appropriate capital for the RBI and how to transfer the excess to the government. Also Read – Food grain output seen at 140.57 mt in current fiscal on monsoon boostAcknowledging that transfer of the excess reserves was one of the key causes of tension between the RBI and Government in the run up to Governor Urjit Patels resignation, Subbarao seemed to suggest that there is little use of the transfers from a fund inflow perspective. He said international investors look at balance sheets of both the government and also its central bank, and that the same applies to distress time lending by the IMF as well. “… I do want to say that we should be very careful, very wary of what decision is ultimately taken on the transfer of the surplus reserves, he said. Many analysts have pegged the so called excess reserves at around Rs 9 trillion, or around 27 per cent of its core capital, and say the Jalan panel may suggest a staggered payout in the range of Rs 1.5 trillion to Rs 3 trillion over a period of three years. He advocated maintaining the autonomy of the RBI as essential because of its horizons extend far beyond the immediate objective of elections which a government can be guided by. Meanwhile, in a departure from his predecessor Y V Reddy and successor Raghuram Rajan, Subbarao said it will be “ok” for the government to test the waters with an overseas bond issue. “I would say that as a one-time measure, just to test the waters, its ok, he said.last_img

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