Clarity needed on investment abroad

MONETARY POLICY 2007-08/ OPINION

A K Sridhar, CIO, UTI Mutual Fund

I think we must not read too much into Governor Y V Reddy's decision leave the key rates unchanged. The Reserve Bank may be comfortable enough at the moment that the current rates are sufficient to tackle the inflationary pressures in the system.

But, as we know from the past, the Reserve Bank could surprise us by hiking the key rates at anytime it wants, if it feels inflation is showing signs of rising again. So, RBI's move to leave unchanged does not surprise me as the tools (CRR, repo, reverse repo etc.) are always available for use at any stage.

The decision to raise individual limits on overseas investments and domestic mutual funds' investment limit is also welcome. But, one should also understand that we are not even using a fragment of the existing limits, be it individual investments or mutual fund investments.

The main reason for this is there are no clear cut guideline on how we could use the existing limits. We have no clue as to how we could use the existing limits to buy shares from overseas markets.

Regarding individual investments in overseas markets, there is also a question on who will keep a tab on the individuals.

The best way may be to allow overseas investments by an individual through a single bank so that there is a tab on overseas investments.