India May Denominate Cap on Foreign Investment in Debt in Rupees

India may consider expressing the cap on foreign investment in government bonds in rupees rather than as currently in dollars, a step that would allow increased foreign buying of the debt.

“We are not opposed to setting the limit in rupee terms,”Finance Secretary Rajiv Mehrishi told reporters in New Delhi Friday. The current $30 billion cap was set when “the rupee was much stronger, but at today’s rupee level the FII effective limit is $24 billion,” Mehrishi said. He didn’t say when any change might occur.

Expressing the foreign institutional investor limit in rupees would raise the debt limit by about 25 percent, said Vijay Sharma, executive vice president for fixed income at PNB Gilts in New Delhi. The current debt limit was calculated at an exchange rate of about 50 rupees to the dollar, he said. The rupee closed at 63.6425 to the dollar Friday.

“It would ease the pressure on bond yields,” Sharma said.

The current $30 billion cap for foreigners in government debt stands almost exhausted at 98 percent, according to data compiled by National Securities Depository Ltd.

The yield on the government securities due in May 2025 ended little changed at 7.82 percent Friday, prices from the central bank’s trading system showed.

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