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RBI likely to launch $30-35 bn NRI bond in Dec quarter to prop rupee up

The report said government bond yields are capped by market expectation of large scale RBI open market operations

Us Federal Reserve  |  Rbi  |  Reserve Bank Of India

Press Trust of India  |  Mumbai 

Reserve Bank of India
FILE PHOTO: A security personnel member stands guard at the entrance of the RBI headquarters | Photo: Reuters

The Reserve Bank is likely to issue non-resident bonds worth USD 30-35 billion in the third quarter if the rupee plumbs the 70-mark and if overseas inflows do not revive, says a report.

"We continue to believe that the finance ministry /will issue in the December quarter-- raising USD 30 -35 billion - if the rupee crosses Rs 70 to the dollar without any turnaround in FPI inflows," Bank of America Merrill Lynch said on Tuesday.

It can be recalled that after the rupee hit 68.85 in summer of 2013 following the taper tantrum talks by the US Fed, the was forced to launch the maiden and mopped up $ 30 billion with a three-year matrurity.

It estimates the current account deficit to be jump to 2.4 per cent of GDP in the current fiscal and expects the to sell USD 20 billion to fund that, if FPI inflows continues to remain dry or plungees to zero.

"This will pull down import cover to 9.3 months in FY19 and 8.4 months in FY20 towards the eight months we deem necessary for rupee stability," the American brokerage said.

The report said government bond yields are capped by market expectation of large scale RBI open market operations, about USD 50 billion after October with FPI inflows drying up.

"We expect the RBI to step up OMO to USD 50 billion by March, if FPI flows do not revive, with durable liquidity contracting by USD 10 billion," the report said.

It said our liquidity model forecasts that money markets will slip into deficit in August (Rs 185 billion) and September (Rs 914 billion) updated for end-July data.

According to the report, RBI will have to inject $ 37 billion of reserve money/durable liquidity in FY19 to fund 6 per cent old series GDP growth.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Tue, August 07 2018. 20:34 IST