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NRI bonds better remedy to stabilize rupee than rate hike: Report

The brokerage is of the opinion that a rate hike by RBI to support depreciating rupee is not likely.

Press Trust of India  |  New Delhi 

NRI Bonds

The depreciation in is unlikely to trigger a rate hike by and instead the central bank may raise USD 30-35 billion by way of to shore up forex reserves, says a BofA Merrill Lynch report.

According to the global financial services major, for stabilising the rupee, are far more effective instrument than rate hikes.

"will likely raise USD 30-35 billion by way of to shore up forex reserves with oil set to stay above USD 70/bbl in 2018-19," it said.

As per the brokerage, there is a rising case for issuing NRI bonds, "with our oil analysts now seeing USD 72/bbl in 2018 and USD 75/bbl in 2019".

The brokerage is of the opinion that a rate hike by to support depreciating is not likely.

After inched up to 4.58 per cent in April, expectations were rife that this may prompt the Reserve Bank to harden stance at the monetary policy review next month.

"We do not expect RBI to hike rates to support the rupee, as FPI equity investment, driven by growth, is 6 times that of FPI debt investment," the report said.

The first bi-monthly monetary policy meeting of 2018-19 was held on April 4-5 and the panel had decided to maintain status quo on the interest rate citing inflationary concerns.

"We continue to expect the RBI to follow an asymmetric forex policy of defending Rs 66/ USD when the dollar strengthens (like now) and buying forex when it weakens," BofA ML said in the report.

First Published: Thu, May 17 2018. 17:09 IST
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