Dr. Bimal Jalan (R), former governor of the Reserve Bank of India (Photographer: Santosh Verma/Bloomberg News)

No Need To Float NRI Bonds At This Juncture, Says Bimal Jalan

Amidst a debate on whether special policy measures may be needed to support the Indian currency, former Reserve Bank of India Governor Bimal Jalan said the country’s economy is doing well and emergency measures like NRI bonds are not required.

“Our reserves are fairly comfortable at the moment. So, we don’t need to have NRI bonds unless there is a problem of defending our exchange rate....” Jalan told BloombergQuint in an interview today.

The Indian rupee has fallen about 5 percent so far this year due to a stronger dollar, higher oil prices and portfolio outflows. The latter have picked up in recent months. In May, foreign investors sold a net of Rs 29,000 crore in the debt and equity markets - the most since November 2016.

These factors have prompted speculation that the government and the RBI may have to step in to defend the currency. So far, the central bank has been selling dollars from its reserves as part of its effort to smoothen volatility.

Will authorities need to go further and use a tool like NRI bonds? In the past, India successfully raised NRI funds in 1998 and 2000, when Jalan was governor of the RBI. In 2013, the RBI raised foreign currency deposits via a subsidised scheme to shore up its reserves.

Jalan said there is no need to issue NRI bonds as a emergency measure at this juncture, but added that NRI bonds can be used as an ongoing scheme.

I don’t think at the moment we have to think about NRI bonds as an emergency action. If you float NRI bonds now, then keep it in the picture all the time. There is nothing wrong in NRI bonds. We have bonds in corporate market here. If you want to have NRI bonds, then have them. There is no problem. We have a convertible exchange rate now....
Bimal Jalan, Former RBI Governor

Commenting on interest rates in the economy, Jalan noted that real interest rates in the economy remain positive and inflation is relatively low. Given that, even if the MPC were to hike rates, the increase should be marginal.

The monetary policy committee began its three-day meet today. While a majority of economists still see the MPC holding rates, some believe that a 25 basis point hike is likely.

There is no reason to increase interest rates, unless we see that the inflation rates have increased, or the real interest rates have turned negative. As of now, that is not the situation. But if you wait for 2-3 months then it may happen. That doesn’t mean that RBI should not increase by 25 bps as has been talked about in the market. That is up to them. It is a signal as it were.
Bimal Jalan, Former RBI Governor

Watch the full interview here: