Key takeaways: Foreign investors allowed to hedge in currency markets

Updated: Apr 2 2014, 09:04am hrs
Foreign investors allowed to hedge in currency markets

The RBI is stepping up efforts to make the Indian markets more attractive by allowing global investors to use derivatives more widely to limit losses from rupee swings. The RBI plans to let foreigners protect the interest income on local bond holdings for up to 12 months, it said in a statement. The central bank said it is also in talks with the capital markets regulator to finalise steps that would enable overseas funds to hedge currency risk by using exchange-traded rupee futures. These measures will lend confidence to international investors, said Raj Kothari, a fixed-income trader in London at Sun Global Investments. The central bank is being very proactive about foreign flows, which is a good sign.

Large foreign banks need to be responsive to local norms

Sending a strong signal that large foreign banks will have to operate as wholly-owned units for better regulatory control, RBI governor Raghuram Rajan asked them to be responsive to local regulations and warned that if carrot does not work, it will have to wield the stick. At some time, this (wholly-owned subsidiary route) will have to become a regulatory issue and to ensure the banking sector stability, we need our large foreign entities to be responsive to the regulations here, Rajan told reporters.

Foreign investors barred from buying short-term debt

In a bid to encourage longer-term flows, RBI has stated that investments by foreign portfolio investors (FPIs) in government securities (G-Secs) shall, henceforth, be permitted only in dated securities of residual maturity of one year and above. The central bank also stated that existing investment in treasury bills will be allowed to taper off on maturity or sale. The overall limit for FPI investment in G-Secs will, however, remain unchanged at $ 30 billion, so the investment limits vacated at the shorter end will be available at longer maturities, RBI said.

Rajan warns of turmoil in markets if polls deliver unstable govt

Raghuram Rajan said on Tuesday the markets have built up high hopes of the elections delivering a stable government, but cautioned against some turmoil in the equity and, perhaps, the bond and forex markets, if an unstable dispensation comes to power. The issue is that the markets right now are anticipating a stable government and rapid policy actions. To the extent markets are disappointed, it will reflect on the stock markets, perhaps on bond markets, perhaps on exchange markets. We have to be prepared for some turmoil, he said.