The Reserve Bank of India (RBI) on Tuesday barred foreign investors from buying government debt with less than one-year maturity to encourage longer-term fund inflows and reduce the country's dependence on hot money.
The steps had been expected given RBI officials have expressed concern that foreign institutional investors (FIIs) are excessively invested in treasury bills, creating concerns about the sturdiness of these flows.
Regulatory data showed foreign funds have utilised almost 90 percent of the permissible limit of $5.5 billion in treasury bills, whereas overall debt limit utilisation stands at just about 60 percent.
Existing investments in treasury bills would be allowed to taper off.
The RBI also allowed foreign investors to hedge against coupon proceeds due within the next 12 months, while saying it was working to allow overseas funds to hedge via currency futures in domestic exchanges, neither of which was previously allowed.
"The Reserve Bank will continue to work to ease entry while reducing risk to foreign investors from the volatility of flows," the central bank said in its policy statement.
The announcements came as part of the central bank's decision on Tuesday to keep interest rates unchanged.
Bond and currency markets were closed on Tuesday to mark the start of the new fiscal year.
Analysts said the eased hedging rules would likely have a limited impact, but should help make investing in debt easier.
The moves would also further develop domestic currency markets at a time when regulators worry about the popularity of trading of currency futures in offshore markets such as Singapore.
The rupee is only partially convertible, and thus not fully opened to foreign investors...
The steps had been expected given RBI officials have expressed concern that foreign institutional investors (FIIs) are excessively invested in treasury bills, creating concerns about the sturdiness of these flows.
Regulatory data showed foreign funds have utilised almost 90 percent of the permissible limit of $5.5 billion in treasury bills, whereas overall debt limit utilisation stands at just about 60 percent.
Existing investments in treasury bills would be allowed to taper off.
The RBI also allowed foreign investors to hedge against coupon proceeds due within the next 12 months, while saying it was working to allow overseas funds to hedge via currency futures in domestic exchanges, neither of which was previously allowed.
"The Reserve Bank will continue to work to ease entry while reducing risk to foreign investors from the volatility of flows," the central bank said in its policy statement.
The announcements came as part of the central bank's decision on Tuesday to keep interest rates unchanged.
Bond and currency markets were closed on Tuesday to mark the start of the new fiscal year.
Analysts said the eased hedging rules would likely have a limited impact, but should help make investing in debt easier.
The moves would also further develop domestic currency markets at a time when regulators worry about the popularity of trading of currency futures in offshore markets such as Singapore.
The rupee is only partially convertible, and thus not fully opened to foreign investors...
Source: Latest News in Hindi
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