Volatile inflows pose problems in Liquidity management-Mohan

Mumbai, June 14 (UNI) Volatile capital flows into the country have caused wide fluctuations in market rates, Reserve Bank Deputy governor Dr Rakesh Mohan said today.

Speaking at the Bank of France in Paris, Mohan said even small capital movements in global perspective, can cause large domestic liquidity movements in economy, distorting market exchanges and interest rates in a developing country.

''Volatility in capital flows and hence in liquidity has marked the period during 2001-07 and posed considerable problems in liquidity and exchange rate management. Sharp shifts in capital flows can be explained as partly frictional and arising from seasonal and transient factors.'', he said.

Absorption of huge volumes of inflows has led to a five percent current account deficit of Gross Domestic Product(GDP). The country witnessed a rampant increase in net private inflows from USD 180 Billion in 1998 to USD 650 Billion Dollars in 2006.

''As the Indian economy continues on such a growth path and attempts to accelerate it, new demands are being placed on the financial system. We need to ensure that we maintain this level of efficiency and attempt to improve on it further.'', said Mohan.

UNI