India will dip into record foreign exchange reserves to repay $2.97 billion of foreign debt ahead of schedule, the Reserve Bank of India said on Monday.
The government will privately place two bonds totalling Rs 130 billion with the RBI for the foreign exchange to prepay $1.3 billion to the Asian Development Bank and $1.67 billion to the World Bank.
India's foreign exchange reserves exceeded $75 billion, according to data released on the weekend.
Analysts said the announcement would not impact the rupee or the bond market, where yields have risen on fears that liquidity may tighten following state governments' loan sale on Tuesday and rising domestic inflation.
"It is liquidity neutral from the bond market perspective," said Janak Desai, treasurer at IDBI Bank. "If they had bought dollars from the open market, it could have tightened liquidity and caused concern in an already jittery bond market."
The RBI said in a statement that the government will place the 6.72 per cent 2014 bond for Rs 55 billion and the 6.57 per cent 2011 bond for Rs 75 billion.
"I see an impact only if there is a long-term trend of prepaying foreign debt as this will result in additional demand," said Surendra Rosha, head of treasury sales at HSBC.