Funds may think twice on India as government-RBI strife deepens

India’s rupee and bonds may come under pressure on concern the government’s attempts to restrict central bank’s freedom of action will unnerve overseas investors.

Prime Minister Narendra Modi’s administration is believed to be seeking closer supervision of the Reserve Bank of India by recommending the board draft regulations allowing the establishment of panels overseeing such functions as financial stability, monetary-policy transmission and management of reserves.

“Any moves by the government that would undermine the independence of the RBI would make us think twice about re-entering the Indian bond market,” said Anders Faergemann, a fund manager in London at PineBridge Investments, which oversees about $91 billion. “Strong institutions are critical for any country and to attract foreign capital the central bank will have to remain independent.”

India’s monetary policymakers and government officials are holding a board meeting Monday amid a struggle over how much capital the central bank needs and how tough its lending rules should be.

The rupee declined 0.1 percent to 72.03 per dollar on Monday after strengthening 0.8 per cent last week. India’s benchmark 10-year bond yield climbed one basis point to 7.83 per cent.