The percentage of foreign holdings in government debt is between 2% and 17% and is unlikely to go up to levels which can cause disruptions. Rather the persistent and long-term nature of these flows will help ease bond yields and support government borrowing, Goyal said speaking to reporters on the sidelines of a conference organised by IIM Kozhikode and NSE.
“In Indonesia for example the percentage of foreign investment in local bonds is as high as 40% but in India, it is as low as 4% of the domestic market. Yes, it will go up but not at levels which will cause volatility,” Goyal said.
Goyal said the long-term and persistent nature of some of the large funds will probably keep bond yields in check and will help reduce government borrowings and fiscal deficit.
Four months ago, JP Morgan announced the inclusion of Indian sovereign bonds in its emerging markets index starting June 2024. The inclusion of Indian bonds in JP Morgan’s index is estimated to bring inflows of $20-30 billion.
Earlier this week, ET reported that an advisory committee has recommended the inclusion of Indian government bonds in the Bloomberg Emerging Market Local Currency Index and a formal announcement of this is likely in the coming days. The inclusion of Indian bonds in the Bloomberg EM index could bring inflows of $5 billion from passive investors. Goyal also said though core inflation in India is lower than the headline consumer price inflation, the headline inflation impacts wages and the MPC would want to see how inflationary expectations channels through headline inflation.The latest data shows that core inflation, which is consumer prices excluding food and fuel moderated to a four-year low of 3.8% in December. In contrast, the headline consumer price inflation was at 5.10% in January 2024 though a three-month low and down from 5.69% in the previous month.
Goyal said that the expectation is now that headline inflation will align with core inflation in due course.
“Research now suggests, in current situations, it is core which is more steady and that affects inflation expectations and headline comes down to the core. So we should see this happen soon,” she said.
According to the official forecast of the RBI, the Consumer Price Index (CPI) inflation is projected to average 5%. in the current quarter. Assuming a typical monsoon for the upcoming year, CPI inflation is predicted to be 4.5% for the upcoming fiscal year 2024–2025.
(You can now subscribe to our ETMarkets WhatsApp channel)
Download The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
