Friday, November 03, 2006

Government securities market gets an edge

The RBI has increased the ceiling for FIIs investment in government securities. At present there is a ceiling of $2 bn on gilts (government securities) holding by FIIs. Yet, their actual holding by FIIs are only about $188.5 mln. RBI proposed to increase the upper limit to $3.2 bn in two phases – to $2.6 bn by December 31 and then to $3.2 bn by March, 2007.

Any Central Bank is frightened at the prospect of foreign investors holding a majority of its debt, as any decision by the investors to turn tail and run, would bring the country to its knees.

With approximately about $166 bn in forex reserves, the country is comfortably placed on the external front.

Even the recent relaxation permitted on short sales – players will now be able to cover their short positions within an extended period of 5 trading days as against the intra-day short selling permitted at present – will give more depth to the gilts market.