Foreigners looking to buy Asia’s best bonds will probably have to wait. Reserve Bank of India’s governor Urjit Patel is unlikely to raise the quota on debt after inflows surged and muddied policy choices. He can’t allow runaway currency gains because exports are only just recovering from a slump, so he’s buying up the dollars pouring in. This injects rupees into a bloated banking system, complicating efforts to reduce liquidity. At the same time, slowing growth pushed him to cut the policy rate this month. India is facing the ‘impossible trinity,’ an economic concept which argues that it isn’t possible to simultaneously pursue free movement of capital, a fixed-exchange rate and an independent monetary policy. Something’s got to give, and since the RBI has an inflation mandate and needs to control the rupee, it will clamp down on capital flows.

(Live Mint)