Even as the rupee plunge continues, with the domestic currency falling to a fresh record low of Rs 74.26 against the dollar, the eased external commercial borrowings (ECBs) norms for OMCs is unlikely to check rupee plunge, according to industry experts. Notably, in order to check the depreciating rupee, the Reserve Bank of India had announced relaxations, allowing state-owned oil marketing companies (OMCs) to raise external commercial borrowings (ECBs) from lenders under the automatic route.
However, the move is unlikely to result in attracting dollar inflows because of the reduced interest rate arbitrage between domestic loans and international debt, The Indian Express reported industry sources as saying. According to State Bank of India’s Group Chief Economic Adviser Soumya Kanti Ghosh, the effective cost of raising external loans is likely to be 8.62%. This may not be very attractive as the lending rate (MCLR) for a three-year loan by the State Bank of India is currently at 8.70%, The Indian Express report said.
“The latest move by RBI on relaxing the norms on overseas borrowing for state-run OMCs is a welcome step in the medium to long term but such a step may not be able to support rupee with an immediate succour,” Ghosh noted, adding that the central bank should consider more steps such as denominating the oil imports from Iran in rupees and opening dedicated dollar swap window for OMCs.
Extending its free-fall, the domestic currency rupee touched a fresh record low of Rs 74.26 against the US dollar in intra-currency trades on Tuesday, an increase of 18 paise from its previous close of 74.07, on the back of elevated prices of crude oil, amid weak domestic stock markets and foreign capital outflows. The rupee has fallen 2% in October and 16% in 2018. Earlier last week, the RBI allowed state-owned OMCs to raise ECBs for working capital under the automatic route with immediate effect. The overall ceiling for such ECBs has been set at $10 billion.