RBI may allow FIIs to buy more government bonds in two years
11 Oct 2014 10:32 PM GMT
‘The RBI will remove limits on foreign participation in the domestic bond market 'once the world becomes excited in a more substantial way about the India story',’ Rajan told Euromoney magazine in an interview.
‘This could happen once the economy reaches potential output over two consecutive years and foreigners organically move to long-end maturities, giving regulators a degree of confidence about the stickiness of flows,’ Rajan said.
‘We want a steady increase in limits — a measured increase — so that we understand what is happening and we see the market developing as these limits are increased. We do think FPIs (foreign portfolio investors) are extremely important to market development,’ Rajan had told analysts during the post-policy tele-conference on 1 October. Even though FIIs reportedly exhaust over 95 per cent of their $25 billion investment limit in government debt, Rajan hinted that there is no need to increase the limit immediately.
‘As short term-debt rolls over, that frees up more space in government bonds and so it is not as if that space is completely shut out. Over time, we will reexamine and see what we can do,’ Rajan said. Meanwhile, citing at least two incidents where the economy has stood out better as against its peers in the emerging markets, Rajan said the country is better placed to face any eventuality due to stronger macroeconomic factors.
‘This could happen once the economy reaches potential output over two consecutive years and foreigners organically move to long-end maturities, giving regulators a degree of confidence about the stickiness of flows,’ Rajan said.
‘We want a steady increase in limits — a measured increase — so that we understand what is happening and we see the market developing as these limits are increased. We do think FPIs (foreign portfolio investors) are extremely important to market development,’ Rajan had told analysts during the post-policy tele-conference on 1 October. Even though FIIs reportedly exhaust over 95 per cent of their $25 billion investment limit in government debt, Rajan hinted that there is no need to increase the limit immediately.
‘As short term-debt rolls over, that frees up more space in government bonds and so it is not as if that space is completely shut out. Over time, we will reexamine and see what we can do,’ Rajan said. Meanwhile, citing at least two incidents where the economy has stood out better as against its peers in the emerging markets, Rajan said the country is better placed to face any eventuality due to stronger macroeconomic factors.
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