In this photo, the photo shows Mahatma Gandhi on Indian rupee banknotes.
Manish Rajput | Moment | Getty Images
Foreign inflows into Indian bonds are set to hit their highest level in a decade at $2 billion around June 28, when the bonds are included in a widely tracked JPMorgan index, although the Reserve Bank of India will absorb most of the dollars to avoid a knee-jerk effect on Indian bonds The ground rises.
Four bankers put the single-day inflow at $2 billion, trailing only the record $2.7 billion inflows into Indian bonds on August 20, 2014, when the prospect of a credit rating upgrade came into focus.
More than $200 billion in assets track the JPMorgan Emerging Markets Index, and India’s weighting will eventually reach 10% by March 2025, suggesting total passive inflows during the 10-month period of at least $20 billion.
The Reserve Bank of India has been keeping a close eye on the rupee to prevent it from falling to historic lows. The bank will remain vigilant about capital inflows and speculative positions against the currency, but has not yet taken additional monitoring measures, a source said. Plan said.
“This is just a case of inflows, this time debt and not equity,” the source said. “It could be good for the rupee and it could be good for foreign exchange reserves.”
The sources and bankers spoke on condition of anonymity because they were not authorized to speak to the media. The Reserve Bank of India did not immediately respond to an email seeking comment.
The RBI is cautious about any significant appreciation as the rupee’s real effective exchange rate, a measure of its relative value against a basket of currencies, suggests it is moderately overvalued, sources said.
So while front-running in anticipation of inflows may boost the rupee, it is unlikely to rise sharply given the central bank’s control over the currency, bankers said.
The Reserve Bank of India said it will continue to take advantage of opportunities to increase foreign exchange reserves, which in turn will help avoid a sudden surge in the rupee.
Because there is no precedent for these debt index-related inflows, bankers’ estimates of the timing of the inflows are based on similar index adjustments in the stock market.
“Obviously this is the first time and you can’t be sure how things are going to go,” warned the head of trading at a major foreign bank.
“However, depending on how the portfolio flows related to (equity) rebalancing occur, funds will be available on (June) 27 or 28.”
It is expected that large foreign banks may consider establishing short USD/rupee positions to help manage inflows, a foreign exchange trader at a foreign bank said.
Yet despite careful planning, concerns remain.
As a senior banker at a large foreign bank said: “All the pipelines that are in place may not work.”
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