Welcome to RBI, Governor Malhotra

RBI SHOULD MANAGE THE FX MARKET IN A WAY THAT PERMITS HIGHER VOLATILITY

- JAMAL MECKLAI

HAVE BEEN interacting with Reserve Bank of India (RBI) for nearly 40 years, beginning with another Governor Malhotra back in 1986, and so I thought I could be forward enough to welcome you. To be sure, RBI is a completely different creature than it was back then, and more power to all the Governors and, no less, the smart and really committed staff for bringing it to where it is today.

Of course (as they say), a mother's work is never done-and so, too, is the case with RBI. You have doubtless a long list of areas that you need to/want to address and there are many skilled people around who will support you as you go forward.

Nonetheless, I want to highlight one recent area of market dysfunction, which appears to have gone unnoticed, or certainly uncommented on. Over the past couple of years, domestic market liquidity has been bouncing between surplus and deficit conditions with alarming frequency. While RBI has a range of instruments that it uses to bring liquidity back to where it believes it should be, users of the market have no such support-there are no market instruments to hedge against higher volatility of liquidity conditions.