RBI Holds Rates But Announces a $40 Billion Plan

RBI kept rates unchanged on June 5 but announced two big moves to attract foreign money into India opening long term government bonds to foreign investors and launching an FCNR swap window for NRIs. Experts believe this could bring 20 40 billion in inflows over the next 1218 months. Until now foreigners could only buy Indian government bonds maturing in up to 10 years. RBI has now opened bonds of 15, 30 and 40 year maturities too directly inviting global pension funds into India. Alongside this the FCNR swap window removes currency risk for NRIs depositing foreign currency in Indian banks making India a more attractive destination for NRI money. More foreign inflows strengthen the rupee, boost forex reserves and reduce government borrowing costs three problems India is battling simultaneously due to the West Asia crisis and elevated crude prices. Banks gain from better liquidity and real estate benefits from lower bond yields leading to cheaper home loans. RBI's 40 billion inflow plan taught me that central banks use powerful tools beyond rate cuts to strengthen a currency, and that tracking these capital flow measures is essential for investors in rate sensitive stocks like $SBIN SBI, $HDFCBANK and $DLF .