$17.5 billion flowing through the FCNR(B) and bank capital swap windows, it should not be difficult, he said, to fund the deficit even assuming there were FII outflows.
“So, if other financing remains the same as last year, which it seems on track for, even if foreign investors pull out significantly more money this year than they have so far, we still can break even on capital flows,” said Rajan.
Between April and now, equity inflows have been close to $6.4 billion while the debt market has seen an outflow of $10.8 billion. In FY13, foreign flows into the debt and equity markets totalled $26 billion.
Foreign investments in rupee bonds – corporate and government – are down to $19 billion from $37 billion on May 21. However, the governor said the remaining investment could be ‘more patient money, but given its diminished size, I do not see its possible exit as a huge risk.” Rajan also told newspersons the government was in discussions with agencies on India becoming a part of global bond indices and was working on comfort levels. “I have no doubt we will be part of an index,” the governor said adding, however, that no timelines had been set. Between June and now, outflows from the bond markets have been $12.6 billion.
Jayesh Mehta, MD and head, fixed income, Bank of America-Merrill Lynch said the governor had cleared much of the doubts and fears of the market. “He has cleared the air substantially. The improvement today after the statement is sustainable,” Mehta said.
The 10-year benchmark bond yield, which had hit a high of 9.15% in intra-day trade cooled down significantly to end at 8.92%. Yields have risen significantly since last week on fears that the RBI would not step in to infuse liquidity via OMOs, which it typically does during busy credit season. Indranil Pan, chief economist at Kotak Mahindra Bank said in a note the press conference was held to soothe the market’s nerves that were showing some strain, especially with the depreciation bias of the USD/INR that registered the day’s weakest at 63.90 and the 10-year