Libor, RBI’s interest cheer for India Inc
The Economic Times, May 6, 2009, Page `1
Gaurav Pai MUMBAI
THE stock market cheerleaders have more reasons to rejoice. Global money markets are beginning to warm up to borrowers while banks in India are being left with little option but to lend.
For the first time, the three-month Libor (London inter-bank offered rate), an international benchmark interest rate used to price corporate loans, has slipped below 1%—an indication that banks are more willing to lend.
Corporate India may not only see its interest cost softening on all foreign loans, but could also find it easier to raise cheaper dollars to refinance the more expensive bridge loans that some companies took to fund ambitious acquisitions.
The global money market, which almost froze after the Lehman collapse, had turned risk-averse with bankers charging a hefty premium over Libor. This premium, better known as a spread over Libor, is now expected to narrow. Indian companies have borrowed more than $70 billion from overseas money markets in the past three years.
In a move that could also lower interest rates on rupee loans, the Reserve Bank of India on Tuesday announced that it would shut the second reverse repo window for accepting surplus fund from banks. With this, local banks would be forced to lend as much as Rs 40,000-50,000 crore. If they choose to invest the surplus money in government or corporate bonds, it would lead to plummeting yields on these papers.
From now on, RBI will conduct only one reverse repo in the morning while the afternoon reverse repo will be held only on reporting Fridays.
However, it’s the drop in Libor that could have a more far-reaching impact on financial markets that are being fuelled by trillions of dollars that central banks across the world have pumped in.
The Economic Times, May 6, 2009, Page `1
Gaurav Pai MUMBAI
THE stock market cheerleaders have more reasons to rejoice. Global money markets are beginning to warm up to borrowers while banks in India are being left with little option but to lend.
For the first time, the three-month Libor (London inter-bank offered rate), an international benchmark interest rate used to price corporate loans, has slipped below 1%—an indication that banks are more willing to lend.
Corporate India may not only see its interest cost softening on all foreign loans, but could also find it easier to raise cheaper dollars to refinance the more expensive bridge loans that some companies took to fund ambitious acquisitions.
The global money market, which almost froze after the Lehman collapse, had turned risk-averse with bankers charging a hefty premium over Libor. This premium, better known as a spread over Libor, is now expected to narrow. Indian companies have borrowed more than $70 billion from overseas money markets in the past three years.
In a move that could also lower interest rates on rupee loans, the Reserve Bank of India on Tuesday announced that it would shut the second reverse repo window for accepting surplus fund from banks. With this, local banks would be forced to lend as much as Rs 40,000-50,000 crore. If they choose to invest the surplus money in government or corporate bonds, it would lead to plummeting yields on these papers.
From now on, RBI will conduct only one reverse repo in the morning while the afternoon reverse repo will be held only on reporting Fridays.
However, it’s the drop in Libor that could have a more far-reaching impact on financial markets that are being fuelled by trillions of dollars that central banks across the world have pumped in.
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