Unrestricted foreign inflows could undermine rupee: Sebi official
06 Sep 2017
The huge foreign fund inflows into India's capital markets would have a debilitating effect on the Indian currency, pushing up the currency over the short term and making it volatile, a senior official of capital markets regulator Securities and Exchange Board of India (Sebi) has said.
Addressing a financial sector event in Mumbai today, Sebi whole-time member G Mahalingam warned about the impact of ''huge'' foreign investments on the rupee and called for ways to manage the inflows through ''a calibrated system.''
Foreign investors have bought a net $23.1 billion in Indian debt so far this year, clearing and exchange data showed, and have almost exhausted their quotas for government and corporate bonds.
They have been net buyers of $6.8 billion in the secondary markets for equity shares, though they turned net sellers in August and have been net sellers so far in September.
The inflows have sparked a 5.5 per cent appreciation in the rupee against the dollar this year, deepening concerns about the impact on export competitiveness at a time of slowing economic growth.
''A huge amount of foreign inflows into the country at a time when the currency in the country has been showing a substantial amount of appreciation is something which the regulator is going to be concerned about,'' Mahalingam said.
''We need to be very careful as far as allowing the foreign flows into the country are concerned,'' he added. ''We can think of maybe different ways of allowing these flows in under a calibrated system.''
The comments by Mahalingam, a former official of the Reserve Bank of India (RBI) , comes after the rising tide of foreign inflows into the stock markets sparked a 5.5 per cent appreciation in the rupee against the dollar this year, deepening concerns about the impact on export competitiveness at a time of slowing economic growth.
"A huge amount of foreign inflows into the country at a time when the currency in the country has been showing a substantial amount of appreciation is something which the regulator is going to be concerned about," Mahalingam said.
"We need to be very careful as far as allowing the foreign flows into the country are concerned," he added. "We can think of maybe different ways of allowing these flows in under a calibrated system."
Mahalingam also reiterated regulatory concerns about rupee-denominated corporate bonds being sold abroad, widely known as "masala" bonds.
The RBI had in June tightened rules for masala bonds, including setting a minimum maturity of three years for issuances of up to $50 million, while Sebi in July said restrictions on foreign purchases of corporate bonds because of high ownership levels would also apply to masala bonds.
"Masala bonds don't hold any currency risk as far as the country is concerned. But at the same time, the external liabilities of the country go up. This is something which we need to bear in mind," Mahalingam said.
