RBI prefers long-term capital inflows: Subbarao

 Governor Subbarao said Tobin tax is not on RBI’s agenda, and the path to full capital account convertibility is being “recalibrated on a dynamic basis”

The Reserve Bank of India (RBI) will liberalise the capital account gradually, keeping in mind lessons from the global credit crisis, and there are no plans to impose Tobin tax to curb currency speculation, governor D Subbarao said.

"Our position is that capital account convertibility is not a standalone objective but a means for higher and stable growth," Subbarao said in a speech delivered at a conference hosted by the Swiss National Bank and the IMF in Zurich on Tuesday.

"As regards a Tobin type tax, we have not so far imposed nor are we contemplating one. However, it needs reiterating that no policy instrument is clearly off the table and our choice of instruments will be determined by the context," he said.

Tobin tax is a transaction tax on currency conversions intended to curb volatility and speculation.

"We believe our economy should traverse towards capital convertibility along a gradual path—the path itself being recalibrated on a dynamic basis in response to domestic and global developments," Subbarao said.
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Foreigners have invested a net $6 billion in Indian stock markets so far in 2010, adding to record capital inflows of $17.5 billion in 2009. The inflow has helped the rupee gain about 2.7% this year, after rising 4.7% last year.

Subbarao said the central bank's preference was for long-term equity inflows, rather than short-term debt flows.

"Our policy has been quite stable," he said, referring to emerging economies that had opened up and then tightened rules when flows became volatile.
"Our policy on equity flows has been quite liberal."

Subbarao reiterated the exchange rate is not guided by a fixed or pre-announced target or band.

"Our policy has been to intervene in the market to manage excessive volatility and disruptions to the macroeconomic situation. This volatility-centric approach to the exchange rate also stems from the source of volatility, which is capital flows," he said.


 

 

 


 

 


 


 

 
 

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