The Reserve Bank of India’s (RBI’s) recent decision to tighten the norms on rupee borrowings and also the rules related to FDI flows could send a message that policymakers are retreating from the markets after having earlier signalled a move towards internationalisation, according to the chairman of Bank of India and former executive director of the RBI, G Padmanabhan.
“The original intention behind the move was laying out a path towards internationalisation,” he said on the RBI’s recent move to tighten rupee borrowings abroad. “It was believed then that as long as we avoid the “original sin”, we should not put micro-restrictions on rupee borrowing. But then the thought process has apparently changed within the RBI,” he said at the FEDAI conference in Budapest.
“In a nutshell, allowing Indian companies to issue rupee-denominated bonds overseas was a powerful market signal of our liberal policy stance and a tangible harbinger of the rupee’s internationalisation. Reversing this path-breaking decision might just send out a message of us retreating from the markets,” he said.