India took steps on Tuesday to support the beaten-down bond market, in moves also expected to prop up the battered rupee, while a top official said there was no need to issue sovereign bonds to Indians abroad or bring in capital controls.
On Tuesday, the rupee fell past 64 to the dollar for the first time and bond yields spiked to a five-year high before the Reserve Bank of India (RBI) stepped in to sell dollars.
Asia's third-largest economy has been hammered by a selloff in emerging markets - particularly those that have to fund large current account deficits - on concerns over the impact of the expected winding down of U.S. central bank stimulus.
Late in the day, the RBI said it would buy long-dated government bonds worth 80 billion rupees through an open market operation on August 23 and would decide after that on the amount and frequency of further operations as warranted.
A series of liquidity-tightening measures to support the rupee has sent interest rates surging, prompting many economists to cut their growth outlooks for Asia's third-largest economy, which grew at a decade-low 5 percent in the last fiscal year.
"I think the steps will help the rupee positively," as foreign investors are attracted back to Indian debt on the expectation of falling yields, said N.S. Venkatesh, treasurer at IDBI Bank.
NO CAPITAL CONTROLS
Separately, Economic Affairs Secretary Arvind Mayaram, one of the most senior officials at the finance ministry, said there was no need currently for a bond issue to non-resident Indians (NRIs).
A bond issue to NRIs is among the measures that has been discussed by the government in order to attract inflows to support the embattled currency.
"In today's scenario, I think that will give a much greater panic situation because we don't need that kind of money at this moment," Mayaram said in a conference call organised by Nirmal Bang Institutional Equities.
He also ruled out capital controls. India has taken several measures that restrict outflows, prompting market worries about further such steps.
"There is no intention of government of India to put any capital controls as such," Mayaram said.
With a record high current