India is looking at all possible options, including a sovereign bond issue to strengthen a weak rupee, chief economic advisor Raghuram Rajan said on Friday after taking suggestions from investment banks. The government’s policy intention right now is also to attract more dollar inflows to finance the current account deficit. The rupee, which nearly weakened 35% since mid October 2010, closed at 59.56 on Friday, gaining marginally from its all-time low seen earlier this month. The weaker domestic currency that makes imports costlier and fuels inflation also comes in the way of any further policy rate cut by RBI at a time when the economy is at its slowest pace of growth in a decade.
?They have given us a lot of ideas, including sovereign bond issues, NRI bond issues. All options are on the table and we will examine them. As and when the need comes, we will take up those options,? Rajan told reporters after meeting representatives from ten banks. The meeting was termed as a ?brainstorming? session.
?They gave suggestions on a number of issues ranging from ways we can make the market more liquid, what kinds of funding needs India might have, how those should be contributed to. They will follow up with more suggestions and we will take note of those and act upon them over time,? Rajan added. He met officials from SBI Caps, Nomura, Barclays, Goldman Sachs, JP Morgan, Bank of America-Merrill Lynch, HSBC, Citigroup and Deutsche Bank.
A sovereign bond issue would infuse more dollars into the domestic financial system, the liquid dollar available will increase and have a bearing on the rupee. Latest data from the RBI show forex reserves fell to a three-year low of $280.17 billion in the week ended July 5.
Bankers said a move to float overseas sovereign bond issue could turnaround sentiment for the rupee. ?The moment there is an announcement of such an issue, the speculative trades will reverse and the rupee would appreciate,? said the treasury head of a foreign bank.
Some of the suggestions made by bankers include issuing NRI bonds with a guarantee on fixed exchange rate for non-resident Indians, as a buffer against fluctuating exchange rates. Samir Kanabar, infrastructure expert from Ernst & Young, said that in order to attract long term flows and to provide stability to rupee, issue of such bonds with a guarantee can be considered.