The rupee is expected to appreciate as such a huge inflow is likely to pep up sentiments in the foreign exchange markets and boost the foreign exchange reserves of the country. "If even half the money (over Rs 4,000 crore) comes into the system, the Reserve Bank of India can delay in effecting a cut in banks' cash reserve ratio for the time being," a senior analyst in a leading brokerage house said.

The SBI will bring in the major portion of the bond proceeds into India by converting it into rupees, chairman MS Verma said. Although the money is being raised to fund infrastructure projects, part of the amount is likely to find its way into the money markets. The issue proceeds are expected to come in August itself, sources said.

"The freshfund infusion will definitely ease liquidity," Verma said. This will have an impact on the domestic interest rates which are expected to remain easy, although of late there have been taletell signs of interest rates going northwards. The easing of liquidity will also ensure a relatively smooth sailing of the government borrowing programme in the current fiscal.

"If interest rates ease, fresh buying interest will come in for government stocks," an analyst said. "Although we have no target in mind, going by the market surveys and pre-issue marketing our assessment is that the bonds will be able to mop up $2 billion," Verma said. The bonds will have a five-year maturity. The rupee, which has been hammered to an all-time low of 43 in the aftermath of the nuke tests and the US sanctions, will look up as the market is expecting about $2 billion to flow in.

"The rupee will certainly appreciate in August. The fact that the State Bank is sure of bringing in $2 billion will have a tremendous psychological impact onthe rupee," a dealer in a private bank said.