What are NRI bonds? Examine how they can help in arresting the slide of rupee against dollar?‘

NRI bonds are issued by the Reserve Bank of India and sold by Indian bank overseas to the NRIs interested in investing in India .In this the NRI purchase the bonds by depositing their dollars in the bank after the lock in period of 3-5 years they have option to convert dollars into rupees back at home . 

It is preferred mode of investment as NRI get higher rate of interest then their domestic foreign bank.The NRI bonds have come into news after their is slide in rupee by more then 13 percent and Indian govt considering it a viable option to arrest the slide 

The various causes of downfall of the Indian rupee are :-

a) Flying away of foreign portfolio investors from emerging markets due to rate hike by the Federal reserve 

b) Increase CAD deficit which has reached to 2.4 percent of GDP and increase dollar demand to pay debt. 

c) Increase price of the Oil in the international market which consequently increase demand of Dollar in the international market 

d) Increase trade war among the countries like USA and China has reduced exports and thus dollar availability 

The NRI Bonds can save the rupee upto ceratin level because 

a) Forign investment :-Foreign investor to the value of nearly 35 billion dollars ahve move out of the country the NRI bonds may attract the same amount of NRI investment and thus save the currency 

b) Increase rupee demand :-It will increase the demand of rupee in the market and thus will stabilise the rupee against the dollar

NRI bonds the ultimate weapon to stabilize Re’ 

The rupee could well reverse its losing streak if the Indian diaspora yet again gets into the rescue act and buys dollar bonds, a proven instrument in helping stabilise the currency during previous periods of turbulence. About $30-35 billion of NRI fund flows could well turn the trend, says a top Bank of America Merrill Lynch research executive. 

“NRI bonds are like the Bramhastra (the ultimate weapon) amid volatile oil prices and growing trade war worries,” said Indranil Sen Gupta, co-head India Research – BofAML. “It is the key to the rupee’s stability.” 

The bank estimates that further central bank intervention of about $30 billion will reduce India’s import cover to eight months in next two years from nine months now. Between April and August, the rupee lost 8.2 per cent against the dollar, ranking itself as the Between April and August, the rupee lost 8.2 per cent against the dollar, ranking itself as the worst performer in Asia after the yuan.