RBI mulls new move using foreign bonds to prop up rupee

India’s central bank is weighing a plan for state lenders to sell foreign-currency bonds, mulling a tool last used nearly three decades ago to draw capital inflows and shore up the beleaguered rupee, according to people familiar with the matter.

Reserve Bank of India officials discussed a proposal that would see lenders issue foreign-currency bonds, potentially with five-year maturities, the people said, asking not to be named as the talks are private. Discussions are preliminary and no decision has been made, they said.

India has used similar tools before to attract inflows. State Bank of India raised $5.5 billion through so-called India Millennium Deposits in 2000, issuing bonds denominated in dollars, euros and pounds. In 1998, SBI had raised more than $4 billion through the Resurgent India Bonds, which were tax-free securities.


The central bank also considered offering foreign-exchange swaps to participating lenders to hedge currency risk, allowing them to offer more attractive yields to investors, the people said. Under such a structure, banks would be able to buy foreign currency from the RBI at a future date at a pre-determined price, they said.

Rupee at Record Low as Foreign Equity Outflows Accelerate

An RBI spokesperson didn’t immediately respond to an email seeking comment on the matter. State-owned lenders report to the finance ministry, which often coordinates with the central bank on policies and measures to stabilize the currency.

“We await more clarity on whether the RBI and government will follow through with such measures, but there are growing signals that authorities are looking at various measures to plug India’s balance of payments deficit,” Nomura Holdings Inc. economists including Sonal Varma wrote in a note. Any new measures would need to account for higher dollar deposit rates globally, which may need a higher subsidy from the RBI to make the plan attractive, they said.

The rupee has weakened close to 6% against the dollar this year, the worst performance in Asia. While anti-speculative measures rolled out by the central bank in March and April briefly helped the currency, pressure is building up again as oil prices remain elevated, exerting strain on the fuel-importing nation’s trade deficit. Stock outflows also exceeded $5 billion last month.

Nomura pegs India’s balance of payments — the broadest gauge of money flowing in and out of the economy — at a deficit of $68 billion in the year ending March 2027.