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RBI Gives Foreigners Reasons to Cheer While Holding India Rates

Foreign investors are may not complain about RBI’s hawkish tone of keeping rates unchanged.

RBI Gives Foreigners Reasons to Cheer While Holding India Rates
Indian rupee and U.S. dollar banknotes (Photographer: Dhiraj Singh/Bloomberg)

(Bloomberg) -- The Reserve Bank of India’s hawkish tone and its decision to keep interest rates unchanged at Wednesday’s policy review left local bond traders grappling with losses. But foreign investors are unlikely to complain.

A “detailed review” of rules on overseas investment in debt markets, which the central bank said will be conducted by policy makers, may provide global funds with greater access to the nation’s bonds, which offer the highest 10-year yield among major Asian markets.

RBI Gives Foreigners Reasons to Cheer While Holding India Rates

Further, the decision to hold rates by itself means that India’s yield gap with the U.S. stays intact. Ten-year rupee sovereign bonds currently pay 440 basis points more than similar-maturity Treasuries. The status quo on rates also underscores the RBI’s pledge to tame inflation, thereby boosting its credibility in the eyes of global investors.

Optimism over future inflows is part of the reason the rupee rallied 0.8 percent versus the greenback on Wednesday, wiping more than a third of its September loss in just one session.

To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani, Ravil Shirodkar