The Reserve Bank of India has no intention to create a vast stockpile of foreign exchange reserves as there was a cost to carry them, Governor Raghuram Rajan told the Central Banking Journal Wednesday.
“This is the cost of not being a reserve currency. So, yes, there is a cost of carry and, yes, we don’t want too much of it… So we build what we need to build but we have no intention to build a huge hoard in any way,” Rajan said.
As on Jul 25, India’s foreign exchange reserves stood at $320.56 bln, up $40.40 bln on year. “But when the pressure is on us to build up and buy relatively unproductive assets, maybe we should allow more of our citizens to buy foreign assets instead,” Rajan said.
He said the RBI intends to let the private sector “manage the adjustments” that were needed in the foreign exchange market, but such a move would not happen overnight.