RBI will dam FIIs inflows if volatile

Will track inflation before taking call on rate move

“We are watching the situation and our policy is clear. We will intervene if (FII) inflows are lumpy and volatile or they disrupt macro economic conditions,” Reserve Bank Governor D Subbarao said after a meeting of central bank board here.

The cross-country foreign institutional investors (FII) have pumped in the highest ever US$22 billion so far during 2010 calendar. On October 13, FII investment crossed the magical US$22 billion or Rs 1 lakh crore in stock markets. The total inflows last year was US$17 billion.On robust foreign fund inflow, the rupee rose to touch a 25-month high of about 44 against the US dollar, giving anxious moments to the policy makers and the exporters.

According to reports, the RBI had intervened on Thursday, by buying dollars in the foreign exchange markets to arrest the rise in value of rupee. SBI Chairman O P Bhatt said in Mumbai that capital inflows would remain high for some time. But the market would be in a position to absorb them for the next 2-3 months.

“There are things like disinvestment programme, Coal India IPO due to which the money will keep coming. The market will absorb for 2-3-months but I do not know what will happen after that,” he said.

Tab on inflation

Meanwhile, RBI said it will examine data on inflation, which has risen to 8.62 per cent in September, while reviewing the monetary policy next month on whether to hike its lending and borrowing rates to tame the rising prices. Experts expect the central bank to hike key short-term policy rates by 25 basis points to check inflation.

“We will study the de-segregate inflation data in the monetary policy review next month. Inflation figure would be one of the variables to be looked at during the review. I cannot speculate the stance of monetary policy,” Subbarao said. In a bid to rein in demand by checking consumer spending, the RBI has raised short term rates five times this year.

The RBI in its mid-quarterly review in September had hiked the short term lending (repo) rate by 25 basis points and borrowing (reverse repo) rate by 50 basis points.

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