Bloomberg News

India Said to Have Raised Debt Holding Limit for Foreign Funds

November 18, 2011

Nov. 17 (Bloomberg) -- India has raised the limit for foreign investors on their holdings of sovereign and corporate debt, a finance ministry official, who declined to be identified citing government policy, said today without elaborating.

Policy makers last doubled the cap on overseas investment in government securities to $10 billion in September, 2010, while it allows up to $40 billion in notes issued by companies. The nation may boost the ceiling for sovereign and corporate debt by $5 billion each, the same official said yesterday. The finance ministry will hold a press briefing today at 12:30 p.m. in New Delhi on the matter.

The decision may be to help stem rupee losses and lower bond yields as record sales by the finance ministry and inflation still above 9 percent for a 11th consecutive month propelled the rates to a three-year high this week, according to SBI Funds Management Pvt. The central bank said yesterday it will buy back government securities this month for the first time since January to boost cash in the banking system.

“The steps are aimed at reducing the government’s borrowing cost and supporting the currency as capital flows have come down,” Navneet Munot, who oversees $9.4 billion as chief investment officer at SBI Funds in Mumbai, said in an interview today. “The central bank seems to have realized that liquidity has tightened too much.”

Bond Yields

The yield on the 8.79 percent security due November 2021 declined eight basis points to 8.80 percent in Mumbai, the lowest level this month, according to the central bank’s trading system. It touched 8.97 percent on Nov. 17, the highest level since August, 2008.

The rate offered by the 10-year government note still has jumped 37 basis points this quarter after the finance ministry boosted the borrowing target for the six months through March by 32 percent.

The Reserve Bank of India has increased interest rates 13 times since the start of 2010 to cool the pace of gains in prices. The repurchase rate, at which lenders borrow overnight from the central bank, is 8.5 percent.

The rupee, Asia’s worst performing currency this year, has depreciated 11.9 percent as overseas investors turned net sellers of equities in January, February, May and August on concern higher borrowing costs will weigh on company earnings. Money managers outside India poured $4.6 billion into rupee debt this year.

The central bank said yesterday that it will buy 100 billion rupees ($2 billion) of debt this month to ease a crunch in the money markets. Lenders have borrowed an average 796 billion rupees each day from the central bank this month, compared with 507 billion rupees in October, suggesting cash is becoming less readily available in the financial system.

--Editors: Sam Nagarajan, Arijit Ghosh

To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net; V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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