The finance ministry has kicked open the door for more foreign investments in the bond market. On Thursday it increased the upper limits for FII investments in government and corporate bonds. Both limits have been increased by $5 billion. That means FIIs can now put up to $15 billion in government debt and up to $20 billion in corporate bonds. So the overall limit for FII investment in debt is now at $60 billion dollars instead of the earlier $50 billion.
The revised limit has no residual maturity obligation, which gives FIIs a lot more room to maneuver. Speaking about the move, RBI deputy governor Subir Gokarn said that while greater debt exposure always meant greater risk, the benefits outweighed the negatives. Among other things, FII inflows could help stem the continuing fall in the value of the rupee.
There’s a sign India’s food inflation is easing a little bit. The food price index rose 10.63% in the week to 5 November. In the previous week it stood at 11.81%. Food inflation has remained high despite 13 rate hikes by the Reserve Bank. Last month, RBI had indicated it may not increase rates again if wholesale inflation eased by December.