RBI Deputy Governor warns corporates of unhedged forex exposure
MUMBAI: Reserve Bank of India deputy governor SS Mundra has admitted that unhedged foreign currency exposure by over-leveraged corporates continues be a major worry for the central bank.
“The corporate sector is highly leveraged and there’s an element of unhedged foreign currency exposure,” said Mundra, while speaking to students in Mumbai. “Because of the easy money policies being pursued by the developed economies in the last two years, there was abundance of cheap credit available. Many corporates have moved to convert their domestic currency borrowing into forex borrowing without caring to hedge for it, and now when the interest rate cycle is about to turn, it would have its own implications on the exchange rate.”
RBI officials, including Governor Raghuram Rajan, have often talked about unhedged foreign currency exposure by Indian companies and mandated banks to set aside more capital in case their customers are not hedged adequately.
Mundra also said that the impending rate increase by the US Federal Reserve is one of the most important events dominating the global economy. On India’s growth potential, he said there was a fair degree of unanimity that the Indian economy is currently growing below its potential, and it’s important to close this gap.
“Indian economy is projected to grow at 7.3% with the potential for even higher growth rate,” said Mudra. “Business confidence is gradually recovering. If you look at the latest IIP data, there has been a warning that it should not be seen as a firm trend. But, it has been rebounding. We in RBI firmly believe that moderate inflation is essential to ensure and sustain a higher trajectory of growth.”
Read full article: Economic Times
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