RBI To Take NRI Bonds Route To Curb Rupee Volatility And FPI Inflow

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New Delhi:  The Reserve Bank of India is expected to raise close to $30 to 35 billion via NRI bonds for supporting its domestic currency as well as offset any impact of declining foreign portfolio investments or FPI into the Indian markets.

The Bank of America Merrill Lynch (BofAML) report highlights that listing of Chinese companies in global benchmark indices such as MSCI will shift nearly US$100 billion worth of investment to China by the year 2019. Also, in the run up to general assembly elections slated early next year, there can be seen a slowdown in FPI flow given the political uncertainty situation the country is reeling in. NRI bonds are deposits raised in foreign currency from NRIs at attractive rate of interest for tenures between 3 and 5 years.

Such bonds carry implicit guarantee by the RBI. The report notes that RBI will issue NRI bonds in case the global crude oil price remains higher at US$ 70 per barrel. The report also added, "We think that there is a rising case for issuing NRI bonds. Every NRI bond issuance has been effective in curbing INR volatility". Currently Indian rupee is seen trading around 67 against a dollar.

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