RBI may look at sale of government bonds to offset dollar deluge - The Economic Times
MUMBAI: The Reserve Bank of India could consider selling government bonds for the first time in four years to minimise the impact of heavy inflow of US dollars that have been pouring in on expectations of a stable regime following the ongoing general elections and could come in with greater intensity after the government is formed.
The RBI on Monday set a limit of 50,000 crore for sale of government securities in 2014-15 under the Market Stabilisation Scheme (MSS), which was introduced in 2004 to facilitate absorption of excess rupee liquidity in the system. "Right now, it is not needed to issue such (market stabilisation) bonds as the situation does not warrant so," said Anindya Das Gupta, managing director of Barclays Bank. "Expectation on OMOs (open market operations for liquidity infusion) and MSS bonds cannot go in tandem. However, for the rest of 2014-15, if required, the RBI can do it depending on the degree of FII inflows."
MSS bonds are special government bonds issued to mop up excess rupee liquidity generated out of buying dollars. Inflow of overseas funds could get a boost after the election results are announced on May 16, dealers said, pointing to expectations of a Narendra Modi-led National Democratic Alliance government. However, a section of the investors expects the RBI to conduct open market operations to infuse 50,000-60,000 crore if liquidity tightens further in the system. In 2013-14, foreign institutional investors (FIIs) put in just $5 billion net in Indian equities and debt securities compared with $27 billion in the previous fiscal, according to data sourced from the State Bank of India.
During 2013-14, the rupee weakened about 10.36% or 5.62 to 59.89 per US dollar on March 28, 2014. "This (MSS bonds) could be possible if there is a deluge of overseas inflows after a stable government comes to rule the country with policy reforms post election results," said Soumya Kanti Ghosh, chief economic advisor and general manager, State Bank of India. Since July 2010, the RBI has not issued such bonds under the scheme.
FIIs invested $9.4 billion between January and March while in April so far, the flows have ebbed a bit amid the nine-phase elections, recording a net investment of $530 million till April 21. The local currency strengthened about 2.12% or 1.31 to 60.59 against the greenback between January 1 and April 21.
If FIIs continue to invest at the rate seen in the first three months of the year, $36 billion could come into the country this year, beating even the level seen in 2010-11, when the total net overseas inflows were pegged at about $30.3 billion, dealers said. Of this, the July-September quarter alone saw an inflow of $19 billion at that time. "This ceiling ( 50,000 crore) will be reviewed when the outstanding balance reaches the threshold limit of 35,000 crore. The current MSS outstanding balance is nil," the RBI said in a release on Monday.
In January, the Urjit Patel committee also recommended the introduction of a remunerated standing deposit facility with usage for sterilisation operations to absorb rupee liquidity
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Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
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The RBI on Monday set a limit of 50,000 crore for sale of government securities in 2014-15 under the Market Stabilisation Scheme (MSS), which was introduced in 2004 to facilitate absorption of excess rupee liquidity in the system. "Right now, it is not needed to issue such (market stabilisation) bonds as the situation does not warrant so," said Anindya Das Gupta, managing director of Barclays Bank. "Expectation on OMOs (open market operations for liquidity infusion) and MSS bonds cannot go in tandem. However, for the rest of 2014-15, if required, the RBI can do it depending on the degree of FII inflows."
MSS bonds are special government bonds issued to mop up excess rupee liquidity generated out of buying dollars. Inflow of overseas funds could get a boost after the election results are announced on May 16, dealers said, pointing to expectations of a Narendra Modi-led National Democratic Alliance government. However, a section of the investors expects the RBI to conduct open market operations to infuse 50,000-60,000 crore if liquidity tightens further in the system. In 2013-14, foreign institutional investors (FIIs) put in just $5 billion net in Indian equities and debt securities compared with $27 billion in the previous fiscal, according to data sourced from the State Bank of India.
During 2013-14, the rupee weakened about 10.36% or 5.62 to 59.89 per US dollar on March 28, 2014. "This (MSS bonds) could be possible if there is a deluge of overseas inflows after a stable government comes to rule the country with policy reforms post election results," said Soumya Kanti Ghosh, chief economic advisor and general manager, State Bank of India. Since July 2010, the RBI has not issued such bonds under the scheme.
FIIs invested $9.4 billion between January and March while in April so far, the flows have ebbed a bit amid the nine-phase elections, recording a net investment of $530 million till April 21. The local currency strengthened about 2.12% or 1.31 to 60.59 against the greenback between January 1 and April 21.
If FIIs continue to invest at the rate seen in the first three months of the year, $36 billion could come into the country this year, beating even the level seen in 2010-11, when the total net overseas inflows were pegged at about $30.3 billion, dealers said. Of this, the July-September quarter alone saw an inflow of $19 billion at that time. "This ceiling ( 50,000 crore) will be reviewed when the outstanding balance reaches the threshold limit of 35,000 crore. The current MSS outstanding balance is nil," the RBI said in a release on Monday.
In January, the Urjit Patel committee also recommended the introduction of a remunerated standing deposit facility with usage for sterilisation operations to absorb rupee liquidity
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
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