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Crucial to keep cap on country’s FII debt: RBI

It is important we keep it this way and manage the economy in way that is careful and that is circumspect,’ he said during an address at the 55th foundation day celebrations at the Somaiya Vidyavihar.

The Reserve Bank had in July raised the foreign Institutional Investors’ debt limit by $5 billion to $25 billion, after the investments started nearing the USD 20 billion threshold. According to reports, the additional headroom is almost exhausted and foreign Institutional Investors’ debt investments in the country are already nearing the $25 billion, leading to expectations that there might be an increase in the cap again.

Rajan said that the country has benefited from the foreign flows into the country, but advised caution, while dealing with such investments, which chase the best yields. “We have to be careful about this money because if we say, ‘this is wonderful, they all like us, we follow tremendous policies and that’s why we got this money’, and we go and spend, we run large current account deficits based on these foreign borrowings,’ he said.

‘But this foreign borrowing cannot be taken for granted. At some point these investors will find greater usage of their money back home and they want to go out once again,’ he added.
Rajan, however, said that through various measures we have been successful in ‘substantially’ containing the current account deficit (CAD), which narrowed to 1.7 per cent in FY’14 from an all time high of 4.8 per cent in the previous fiscal.

Meanwhile, RBI Deputy Governor H R Khan told reporters on the sidelines of an annual banking event organised by Ficci and IBA here, ‘As of now there is no such (raising FII debt limit) proposal, but we will see.’

The government has budgeted Gilt buyback worth Rs 50,000 crore for this year. And the first tranche of Rs 20,000 crore was auctioned on Tuesday, but the RBI accepted bids worth only Rs 12,761.46 crore.

Asked when would RBI buy back the rest of government securities which was announced during the Budget, Khan said a decision on this will be taken later.
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