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With the US Federal Reserve projecting a steeper increase in borrowing costs next year, the Reserve Bank of India has provided a buffer to importers by doubling the eligible limit for hedging to 100 per cent of the average of the past three years’ import turnover.
If the import turnover of last year is higher than the average of the past three years, then that will be the applicable limit for importers, under the past performance route.
“This is a boost to the manufacturing sector,” said D Muthukumaran, head, group corporate finance, at Aditya Birla Group. “RBI is encouraging manufacturing companies to be certain about the cost by being able to hedge their total exposure.”
The regulator in its bimonthly monetary policy review took further steps to support the rupee. RBI raised the amount of government bonds that banks can hold as High Quality Liquid Assets, which can be used to borrow emergency funds when market conditions call for liquidity additions.
“These steps will help if the geopolitical situation turns bad and oil prices shoot up,” said Prabal Banerjee, president-international finance at Essar Services. Rising oil prices would result in devaluation of the rupee and impact importers. Manufacturers who depend on imported inputs can get badly affected in such a scenario. These steps would help them to hedge their exposure.
“Basically, RBI is influencing and inducing corporates to hedge as much as possible,” said Banerjee.
"This will provide importers flexibility for hedging, in line with what already exists for exporters," said V S Parthasarathy, group finance chief for Mahindra & Mahindra.
The regulator also cut liquidity provided under the export credit refinance facility to 15 per cent of eligible export credit due, from the present 32 per cent. It said it would lower the amount of bonds that banks can hold without marking to market (revaluing at current prices) in cuts of 50 basis points between January and September 2015.
