Mumbai: India’s central bank is likely to raise the cash reserve ratio by an additional 50 basis points this fiscal year to suck out funds pumped in by its intervention in the currency market, Singapore-based DBS Bank Ltd said in a report on Tuesday.
The Reserve Bank of India (RBI) raised the cash reserve ratio (CRR) to 7% from 6.5% last month—the highest since November 2001.
RBI has been buying dollars aggressively to stem the rupee’s rise. DBS estimates it bought $15 billion (Rs61,050 crore) between May and July, and its purchases are likely to be large in the coming months.
DBS forecasts that RBI periodically will raise CRR to reach 8.5% by September 2008 to mop up part of the intervention funds.
Foreign funds, chasing attractive returns, are likely to continue investing strongly in India strengthening the rupee further. The local currency has gained about 9% against the dollar so far this year.
The finance ministry has placed curbs on capital inflows earlier this month to limit the rupee’s rise.