Mumbai: Indian policymakers may have to raise more bonds sold under the Market Stabilisation Scheme (MSS) to drain surplus cash generated by its currency market operations, DBS said in a research note on Tuesday.
The MSS bond ceiling has been raised three times in 2007 - latest in October. The outstanding issuance was around Rs1.74 trillion below a self-imposed ceiling of Rs2 trillion. It is reviewed if the outstanding hits 1.85 trillion.
But inflows have remained robust, thanks to a US rate cut, and a booming local stock market, pushing the local unit to near-decade highs, and DBS expects the central bank to keep up with its rupee selling tactics for the remainder of the year.
“Assuming capital flows revert to normal patterns, we would still expect $3-4 billion monthly net surplus in the coming months, and by extension dollar-buying intervention of similar amounts,” Ramya Suryanarayanan, the analyst at the bank wrote.
“Bonds outstanding under MSS should reach $44 billion by early November and should hit $46-47 billion sometime in November or December, we reckon,” it said. “The sterilisation, however, should prove insufficient,” it said.
Authorities may resort to capital controls if they are unable to stem the flood of money, but the measures are unlikely to be draconian in nature as India needs huge amounts of money to fund its infrastructure needs, the Singapore-based bank said.