Overseas settlement of India's sovereign debt will add to rupee volatility: RBI
17 April 2015
Reserve Bank of India (RBI) is opposed to a proposal to allow overseas settlement of the nation's sovereign debt as it fears such a move could lead to an in increase in currency volatility, reports quoting people familiar with the matter said.
RBI governor Raghuram Rajan had in October indicated that policy makers are in talks with institutions like Euroclear to see that actual trades happen in India while investors can work through a front elsewhere.
But it now turns out that the RBI doesn't favour the settlement of rupee bonds on Euroclear Bank SA or Clearstream Banking SA platforms, but instead wants foreigners to engage local custodians or depositories, says reports.
Governor Rajan, however, said the RBI is focused on implementing reform measures on a steady and regular basis instead of going after big bang reforms that are not well thought out.
India has been taking regular steps toward full capital-account convertibility but still places restrictions on swapping rupees for other currencies. Rajan too has recently called for full capital-account convertibility.
Speaking on the sidelines of the IMF/World Bank spring meetings on Thursday, Rajan also said that IMF needs to play a more neutral role and eliminate currency manipulation wherever it can be found.
According to Rajan, ''We need arbiters like the IMF to tell us when domestic policies have international effects that do more harm than good.''
The RBI governor further said that one cannot pull himself out of crisis by depreciating the exchange rate, and then point a finger at everybody else.
India is a current account deficit (CAD) country. Though CAD has shrunk, you either finance it through foreign direct investment which is probably the safest mode. But at some level you take other forms of financing also, Rajan said.
Too much of anything and certainly taking too much of short term debt will lead to worries, he added.