The Reserve Bank is likely to increase the investment limit for foreign portfolio investors in government securities by USD 5 billion, once the Budget is announced, says a report.

Currently, overseas investors have exhausted their investment limit of USD 30 billion in government securities.

Out of this total, USD 5 billion is on tap investment.

“We expect a limited USD 5 billion hike after the Budget.

This will likely include USD 1.5 billion that will come in after FPIs have been allowed to re-invest coupons even if their investment limit — currently at USD 30 billion-is hit,” Bank of America Merrill Lynch said in a report.

Despite strong demand for government securities, the RBI will likely continue to err on the side of caution until markets price in the Fed rate hikes which are expected from September, the report said.

BofA-ML expects the Reserve Bank to hold the rupee at 60—65 levels, unless the US currency appreciates and if the rupee regains 60—62 levels, then RBI will buy dollars to keep the rupee under check.

“If the rupee trades in 63-64 level, the RBI will likely offer token defence selling, say, USD 500 million-USD 1 billion, as it did last month. The RBI should ideally want to hold Governor Raghuram Rajan’s preferred level of 60-62,” the report said.

According to the latest RBI data the apex bank sold USD 9.946 billion worth of dollars while it purchased USD 13.027 billion in November 2014.

The RBI has been net purchaser of dollars for the most part of the current fiscal.

The report said in case the rupee touches 65 level against the dollar, there will be a full-scale forex intervention of around USD 15 billion by the central bank.

BofA—ML said the RBI would continue to recoup forex reserves to fight possible contagion when the Fed raises rates in September.

“If oil persists at USD 50 per barrel levels, the RBI should be able to take import cover to 10 months by March 2016, above the critical 8—month import cover needed for the rupee stability,” the report said.