Governor Das says RBI has major concerns about cryptocurrencies

“We have certain major concerns about cryptocurrency. We have communicated them to the government. It is under consideration in the government and I do expect and I think sooner or later the government will take a call and if required the parliament also will consider and decide," he said in an interview to CNBC-Tv18 . “I want to make it clear that the blockchain technology is different. Blockchain technology benefits have to be exploited, that is another thing. But on crypto we have major concerns from the financial stability angle and we have shared it with the government. The government will consider and take a call," he added.

In 2018, RBI had banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for fraud post demonetisation. Last year the Supreme Court struck down the curbs on crypto currency trades in response to a petition by cryptocurrency exchanges.

The government is now planning to introduce a bill in Parliament to bar companies and individuals from dealing in crypto currencies while creating a framework on official digital currency.

Das also said the RBI is "very much in the game" and is getting ready to launch its own digital currency.

"Central bank digital currency is work in progress. RBI team is working on it, technology side and procedural side, how it will be launched and rolled out," he added.

On the issue of yield management, Das said that RBI will ensure an orderly evolution of the yield curve, trying to assuage concerns of the market on surplus liquidity and government borrowing. He assured that RBI will not pull out liquidity prematurely to stifle growth.

“If you go back into my monetary policy statements, right from October onwards – October and then again in February – I have given a very clear signal and explicit guidance to the bond markets. What I have said is that in RBI, we are expecting a cooperative working with the market and we expect an orderly evolution of the yield curve," he said.

Das’ comments come at a time when the yield on the benchmark bond has been rising persistently despite RBI’s efforts to keep it at 6%. The 10 year bond yield touched 6.19% on Monday, the highest level since 24 August. RBI has been devolving auctions, or forcing underwriters of bonds to buy the bonds, or even cancelling auctions to check yields. With ₹12 lakh government borrowing programme coming up in the next financial year, the market expects the central bank to step up its bond buying program through open market operations.

RBI has done a total open market operation (OMO) of more than ₹3 lakh crore in the current financial year.

“Considering the borrowing requirement of next year, there is no reason why RBI should do less OMO in the next year that is 2021-2022 than what we did in the current year. How much of OMO we will do is a different issue," Das added.

Brokerage firm Emkay Global is estimating net open market operation (OMO) purchases to touch ₹4.5-5 trillion in fiscal year 2021-22. “With RBI stressing on orderly evolution of yield curve, we believe the policy intervention only targeting 10-yr yield may merely lead to only an artificial kink (and consequent market positioning) in the curve rather than alleviate the rate stress across the curve. And thus a more holistic approach is needed," said Madhavi Arora, lead economist, Emkay Global.

Further Das also expressed confidence that inflation will continue to remain within the 6% target. While core inflation has remained elevated, RBI does not expect inflation to see any sudden spike. RBI expects CPI inflation at 5.2 per cent to 5.0 per cent in the first half of next financial year and 4.3 per cent in the third quarter next year.

On the recent announcement on privatisation of public sector banks, Das said that while the government has the final say in deciding the buyers, potential owners of the soon-to-be privatized government-controlled banks must be financially strong to capitalise the banks significantly. The bidders should also meet RBI’s fit and proper criteria.

The bond market was not enthused by Das’ comments and the yield on the 10 year benchmark fell just 2 bps to close at 6.147 from its previous close.