Foreigners buy US$ 1 billion (Rs. 8,472 crore) in bonds, betting on policy easing after GDP data
- IBEF
- December 6, 2024
Foreign investors have significantly increased their purchases of Indian government bonds in the past four sessions, following weaker-than-expected economic growth data last week. These raised expectations of a monetary policy easing by the Reserve Bank of India (RBI). These investors net bought over US$ 1.06 billion (Rs. 9,000 crore) in bonds under the Fully Accessible Route (FAR) until Wednesday, with most of these included in JPMorgan's debt index. In contrast, foreign investors had been net sellers for most of November, as elevated US yields and concerns about the Federal Reserve's policy following Donald Trump's election victory dampened sentiment. At one-point, net sales in FAR bonds exceeded US$ 1.18 billion (Rs. 10,000 crore).
Market participants now anticipate that the RBI may ease monetary conditions, with many expecting a reduction in the cash reserve ratio (CRR) from the current 4.5%. A CRR cut of 50 basis points could release US$ 12.98 billion (Rs. 1,10,000 crore) into the banking system, stimulating bond demand. The 10-year bond yield has dropped to a three-year low, and the spread with the repo rate has narrowed to a seven-year low, suggesting that monetary easing is imminent. Some analysts, like Mr. Dhiraj Nim from ANZ, forecast an interest rate cut in the upcoming RBI policy meeting, citing downside risks to growth. Others, such as Mr. Manish Bhargava from Straits Investment Management, believe the weak growth data could signal economic slack, prompting the RBI to act sooner than expected. Despite rate cut expectations, India's relatively high yields and stable rupee make it an attractive option for foreign investors.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
Partners
