Surging forex reserves, now over $108 billion, have put 'considerable' pressure on the Reserve Bank of India, which finds the existing money control instruments inadequate to manage the capital inflows, according to PNB Gilts.

"Relentless surge in forex inflows -- with reserves crossing $108 billion -- have put a considerable pressure on the country's central bank," PNB Gilts said.

• What's India doing with its vast forex reserves?

"RBI is finding the existing instruments of monetary control inadequate for managing these capital inflows and the resultant excess liquidity," it said, but added that so far RBI has been successful in sterilising these capital inflows.

Economists attribute the situation as the 'impossible trinity,' the trilemma in maintaining controls on the three major rates -- exchange rate, inflation rate and interest rate -- that drive an economy, it pointed out.

Managing exchange rate to retain export competitiveness 'perforce' results in injection of liquidity in the domestic economy and the excess liquidity pushes interest lower while also building inflationary pressures in the economy.

Observing that there was only a 'finite' stock of G-Secs

available with RBI for Open Market Operations and Liquidity Adjustment Facility operations, it said the central bank had recently embarked on Market Stabilisation Fund through issuing of Market Stabilisation Bonds to collect up to Rs 60,000 crore (Rs 600 billion).

The bonds, which is expected to suck out excess liquidity from the system over and above the amount that can be absorbed under day-to-day repo operations, 'is unlikely to have any adverse impact on money market rates,' it said.