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Record Reserves Turn Costly Cash Pile for India Central Bank

  • Increased foreign, local inflows make sterilization expensive
  • Economists urge creation of new tools to manage cash influx
Bloomberg business news

India's FX Reserves Approach Record $400 Billion

Updated on

As India’s foreign-exchange reserves march toward the unprecedented $400 billion mark, its central bank faces a costly conundrum.

To keep the rupee stable and exports competitive, it is having to mop up inflows that’s adding cash to the local banking system. Problem is, banks are flush with money following Prime Minister Narendra Modi’s demonetization program last year, leaving them already struggling to pay interest on the deposits in an environment where loans aren’t picking up.