ANZ’s First Thoughts On JPM GBI-EM Index Inclusion

ANZ note that “from a macro perspective, JPM GBI-EM bond index inclusion should help to lower the cost of capital, at least indirectly.”

• “At 26.94% of net demand and time liabilities, the statutory liquidity ratio (SLR) of banks exceeds the prescribed limit of 19.5%. As foreign participation rises, banks can reduce these holdings and increase lending to the private sector.”
• “At the same time, we note that bond inclusion will add to volatility in Indian bonds. This has been the experience of most economies that have liberalised debt flows but have faltered on fiscal discipline and sticking to inflation targets.”
• “Absent a bunching up of debt portfolio flows, we believe that bond inclusion will not complicate foreign exchange management. The monthly trade deficit has settled around USD22bn, with a services trade surplus of USD12bn, and a net primary and secondary income surplus of around USD4bn. From this viewpoint, absorption of USD24bn (or USD2bn a month) by the RBI is unlikely to be an issue in the 2025 financial year. It also implies the current strategy of limiting INR volatility can continue.”