Sovereign bonds in limbo

  • Mahua Venkatesh, Hindustan Times, New Delhi
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  • Updated: Jul 18, 2013 22:26 IST

Sovereign bonds may not be issued in a hurry.

With the rupee hitting new lows, the government is likely to wait for the currency market to stabilise before taking any decision on launching sovereign bonds, as advised by bankers last week.

The bankers gave the go-ahead on account of the widening current account deficit (CAD) — the difference between the outflow and inflow of foreign currency. India’s current account deficit hit a record high of 4.8% in 2012-13,

“While sovereign bonds could be a solution to address the widening CAD, the timing could be critical or else it would pass a negative message to investors,” a source familiar with the developments said.

With gold imports falling in the first three month of the current financial year, CAD is likely to be “significantly lower” in the first quarter of 2013-14, sources said.

Gold imports fell to 61 tonnes in June from 162 tonnes in May and 141 tonnes in April.

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“Things could look much better with imports of gold coming down, which would naturally help in addressing the CAD,” a government official pointed out.

To curb demand further, the government recently hiked the import duty on the metal and  the RBI urged banks to reduce import and sale of gold.

Last week, chief economic adviser Raghuram Rajan held a meeting with bankers to find a solution to the existing problem and said that one of the options discussed was the launch of sovereign bonds.

 

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