Borrowing costs

Indian businesses’ borrowing costs rise due to cash-draining measures

Borrowing costs for companies in the Indian rupee bond market are rising after the country’s central bank unveiled measures to drain the liquidity it had pumped into the financial system to counter the impact of the pandemic.

Average BBB-rated three-year rupee bond yields rose 28 basis points this week through Thursday, on track for their biggest weekly increase since 2018, according to data compiled by Bloomberg. Borrowing costs for higher-rated issuers have increased by a similar amount, but they generally have better access to funding than their lower peers.

The increase comes after the Reserve Bank of India last week announced its intention to gradually restore liquidity operations to normal in the markets. The central bank’s action comes after market interest rates have fallen below the RBI’s desired levels, but Gov. Shaktikanta Das will need to be careful in calibrating the changes to avoid unintended consequences for investors. weakest borrowers.

“Rising borrowing costs will hurt the plans of lower-rated companies to refinance their debt, especially in the short term, and will increase pressure for them to access funds,” said Ajay Manglunia, managing director and head of debt. institutional fixed income securities at JM Financial Products.

Weaker domestic companies have been the biggest beneficiaries of unprecedented fiscal stimulus and record benchmark interest rates provided by the central bank to prop up Asia’s third-largest economy against the economic fallout from the virus. Armed with these measures, economists expect India’s growth to rebound in the next fiscal year, even as the pandemic is expected to push the country into its sharpest contraction since 1952, according to government estimates.

The Reserve Bank of India plans to absorb Rs.2 trillion from the local banking system through a 14-day reverse repo auction on Friday, according to the central bank.

True, yields on BBB-rated three-year rupee notes are still around 160 basis points lower than they were at the start of 2020 before the pandemic hit global markets, according to data compiled by Bloomberg. . The RBI also reiterated that it will ensure the availability of abundant liquidity in the markets, as businesses continue to cope with the stress of the pandemic.

This story was posted from an agency feed with no text editing. Only the title has been changed.

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