The Reserve Bank of India (RBI) is unlikely to vote in favour of overseas sovereign bonds at its meeting with the government, reports Business Standard.
Finance Minister Nirmala Sitharaman announced the government’s plan to issue overseas sovereign bonds during its Budget presentation on July 5.
The central bank is concerned that signals by overseas bonds could disrupt local bonds, which are controlled by the RBI, the report said.
The RBI has already communicated its fears informally, and will officially express it at the meeting with the government on August 16, sources told the publication.
Moneycontrol could not independently verify the story.
The government intends to raise $10 billion (roughly Rs 69,000-70,000 crore) from the issue of overseas bonds, expected to be around 10 percent of planned borrowings of Rs 7.1 lakh crore in 2019-20.
The central bank thinks raising money through sovereign bonds is unnecessary, given that domestic bond yields have eased by 100 basis points (100 bps=1 percentage point) since January.
RBI Governor Shaktikanta Das has so far not commented on the plan, only saying that the central bank has been discussing it with the government.
The move could dent RBI’s control over interest rates in the economy. This because sovereign bonds work like non-deliverable forwards, which are outside the central bank’s purview.
Former RBI Governor Raghuram Rajan and former RBI Deputy Governor Rakesh Mohan have criticised the proposal. Rathin Roy, a member of the Economic Advisory Council (EAC), said the government should rethink the move.