RBI in no hurry to raise foreign portfolio limit in government debt: Rajan
01 Oct 2014
Reserve Bank of India proposes to raise the cap on foreign portfolio investments in government debt in a "steady" and "measured" manner, governor Raghuram Rajan said today.
"We want a steady increase in limits, a measured increase so that we understand what is happening and we see the market develop as these limits are increased. We do think FPIs are extremely important to market development," he told analysts in a conference call on Wednesday.
Rajan said he expects the government bond allocation available for foreign investors to increase as short-term debt matures, but added the central bank would over time "re-examine the limit and see what we can do."
As of Tuesday, foreign institutional investors had exhausted 96.6 per cent of the $25 billion government debt limit. Rajan said there was no need to increase the limit immediately.
"As short-term debt rolls over, that frees up more space in government bonds and so it's not as if that space is completely shut out and over time we will re-examine and see what we can do," he said.
RBI had, in July, increased the investment caps for FIIs in government securities by $5 billion to $25 billion, within the total limit of $30 billion.
RBI deputy governor Urjit Patel, meanwhile, said that country is not in talks with global bond indices for an inclusion in the emerging markets category, even though there are obvious advantages like attracting more funds.
"Main issue which the index people are asking is to totally remove the ceiling on FPI investment in government bonds. Because of our capital account management issue, we are not in a position to do that but in a progressive manner we will increase," deputy governor H R Khan explained.
Patel said that the country "did get a fillip" after the upgrade in revision in the outlook by S&P. "I think we are in pretty good shape without being a part of the index," he added.
