Indian rupee: ‘NRI bonds the ultimate weapon to stabilize Re’

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MUMBAI: The rupee could well reverse its losing streak if the Indian diaspora yet again gets into the rescue act and buys dollar bonds, a proven instrument in helping stabilise the currency during previous periods of turbulence. About $30-35 billion of NRI fund flows could well turn the trend, says a top Bank of America Merrill Lynch research executive.

“NRI bonds are like the Bramhastra (the ultimate weapon) amid volatile oil prices and growing trade war worries,” said Indranil Sen Gupta, co-head India Research – BofAML. “It is the key to the rupee’s stability.”

The bank estimates that further central bank intervention of about $30 billion will reduce India’s import cover to eight months in next two years from nine months now. Between April and August, the rupee lost 8.2 per cent against the dollar, ranking itself as the worst performer in Asia after the yuan.

“This assumes that the current account deficit expands to 2.9 per cent of GDP in FY20 from 2.6 per cent in FY19 even as global/ political uncertainty dries up FPI flows,” said Sen Gupta. “We continue to point out that NRI bonds should be far more effective than RBI rate hikes in supporting the rupee, given that portfolio flows are slowing in the face of a rising oil import bill. Past success stories should encourage the authorities to frame such a scheme.”

The government had issued NRI bonds on three occasions — 1998, 2000, and 2013. All such bond sales helped stabilise the rupee. If the RBI gives its green signal, it will be the fourth series of such an issue. Foreign portfolio investors have net sold Rs 88,082 crore worth of domestic debt securities and equites this year, show data from National Securities Depository.

BofAML expects NRI bond sales to begin if the rupee remains above 70 to the dollar, with no signs of revival in FPI flows. RBI-backed NRI bonds are Indian bank forex deposits raised from non-resident Indians at attractive rates across two-three- or five-year maturities.

RBI supplies dollars to issuing banks, which would repay the dollars after a stipulated period.





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