Bank borrowings test RBI's CRR resolve

Bank borrowings from the Reserve Bank of India has doubled in two weeks, testing the Reserve Bank of India's resolve not to signal a shift in monetary stance of fighting inflation by easing the cash reserve requirement. The maturity of forward contracts where the central bank had sold US dollars to prevent the rupee slide last month, and higher demand for funds from companies that no more want to borrow overseas due to higher rates, could push up interest in the domestic market in the short term, traders say. "The selling by RBI for intervention was partly extended by receiving the forward sales," said Ashish Vaidya, executive director, trading, UBS AG. "So, the impact of that on systemic liquidity will be felt on the day the forward sale matures."

Source: Economic Times