New Delhi: China’s central bank bought Indian bonds for the first time after the government relaxed curbs on foreign investment, the Economic Times newspaper reported on Wednesday, citing a regulatory source it didn’t identify.

Buying by the People’s Bank of China (PBOC) “is viewed as a huge positive for the rupee in capital markets amid growing acceptability of the rupee as a viable investment vehicle for global trades," Stephen Innes, a Singapore-based currency trader at Oanda, a retail foreign-exchange broker, wrote in a report.

India allowed global funds to raise their holdings of the nation’s sovereign debt as much as 13,000 crore by December, part of a wider opening that the central bank said will help attract 1.2 trillion by March 2018. That’s after investors including Pacific Investment Management Co. pressed for higher participation in the notes that are Asia’s top performers in the past year and offer the region’s highest yields after Indonesia.

Slowing inflation, improving public finances and narrowing currency swings have boosted investor confidence in Asia’s third-largest economy. The rupee “will become more attractive as an investment currency," Reserve Bank of India (RBI) governor Raghuram Rajan said in an interview in Mumbai on Tuesday.

PBOC, which is registered as a foreign portfolio investor in India, may have bought bonds worth $500 million, the Economic Times reported, citing what it described as “market circles."

Diversifying reserves

PBOC didn’t immediately reply to a fax requesting comment. RBI spokeswoman Alpana Killawala didn’t immediately respond to an e-mail.

Putting money into Indian bonds could help PBOC diversify its holdings, according to Principal Pnb Asset Management Co. As of the end of August, about $1.27 trillion of China’s then $3.56 trillion of foreign-exchange reserves were invested in Treasuries.

“Sentimentally, this development is positive for the rupee and bond markets," said Bekxy Kuriakose, Mumbai-based head of fixed income at Principal Pnb. “For China, it is a way to reduce the concentration of US Treasuries in its reserves." Bloomberg

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