1.With bulging FX reserves, it is prudent to diversify the reserves across currencies further.The MSS bonds would bear lower interest rate if CRR is reduced.(Banks would be happier with a lower interest rate cut-off in auctions rather than no interest).The US$ bought during intervention should be used for investing in higher yield non US$ assets(certainly higher than interest earned on US Government paper and if possible interest paid on MSS bonds) say partly in Brazilian and other emerging market Government bonds . If the RBI is bullish on gold then that too may be purchased in much larger quantitites. Crude oil may also be purchased on an ongoing basis to build a strategic reserve.2.If and when the US$ are pulled out of the country by investors, the US$ will not be brought back to the country by RESIDENTS to soften the blow. Lets not be naive!
Please note: Comments are moderated. Only civilised conversation is permitted on this blog. Criticising me is perfectly okay; uncivilised language is not. I delete any comment which is spam, has personal attacks against anyone, or uses foul language. I delete any comment which does not contribute to the intellectual discussion about the blog article in question.Please note: LaTeX mathematics works. This means that if you want to say $10 you have to say \$10.