India central bank chief says may withdraw more funds via bond sales

[MUMBAI] Reserve Bank of India Governor Raghuram Rajan said the central bank could continue to withdraw liquidity via open market operation bond sales, while saying any hike in foreign debt limits would only come after the US Federal Reserve raises US rates.

Foreign investors have nearly exhausted their US$25 billion allocation of government bonds, but Mr Rajan said the central bank would likely proceed cautiously on raising the limits.

"You don't want to introduce this in an environment of excess liquidity and see a lot of inflows come in at that point," Mr Rajan said on a conference call with analysts.

The RBI had earlier in the day kept its policy rate on hold at 7.25 per cent on Tuesday, as widely expected, while leaving the door open to ease further.

REUTERS