RBI to issue NRI bonds worth USD 30-35 billion
The report said government bond yields are capped by the market expectation of large-scale RBI open market operations, about USD 50 billion after October with FPI inflows drying up.
"We continue to believe that the finance ministry/RBI will issue NRI bonds in the December quarter- raising USD 30-35 billion - if the rupee crosses Rs 70 to the dollar without any turnaround in FPI inflows," Bank of America Merrill Lynch said today.
It can be recalled that after the rupee hit 68.85 in summer of 2013 following the taper tantrum talks by the US Fed, the RBI was forced to launch the maiden NRI bonds and mopped up USD30 billion with a three-year maturity.
It estimates the current account deficit to jump to 2.4 percent of GDP in the current fiscal and expects the RBI to sell USD 20 billion to fund that if FPI inflows continue to remain dry or plunge to zero.
"This will pull down import cover to 9.3 months in FY19 and 8.4 months in FY20 towards the eight months we deem necessary for rupee stability," the American brokerage said.
It said our liquidity model forecasts that money markets will slip into deficit in August (Rs 18,500 crore) and September (Rs 91,400 crore) updated for end-July data.
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