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Bulk of ECBs effectively hedged, external sector well-buffered: RBI’s Das

At a time when the unhedged exposure of Indian firms to overseas borrowing has stoked concerns about a depreciating rupee, Reserve Bank of India Governor Shaktikanta Das said that a prominent part of the outstanding External Commercial Borrowings (ECB) has been effectively hedged.

“Let me elaborate. According to the June 2022 Financial Stability Report of the RBI, from the outstanding ECBs of $180 billion, about 44 per cent or $79 billion is unhedged,” Das said at an event in Mumbai.

“This includes around $40 billion liabilities of public sector companies mainly in the petroleum, railway and power sectors, which have assets with a natural hedge character,” he said.

The remaining portion of around $39 billion, which represents 22 per cent of the total outstanding ECB exposure, includes borrowings by companies that have a natural hedge in the form of foreign currency earnings, Das said.

“Besides, the foreign exchange risks of public sector entities can be absorbed by the government, if required, but that possibility is very remote,” the RBI Governor said.

“It is necessary to look at the so-called unhedged forex reserves in their proper context instead of getting carried away or alarmed by what is revealed on the surface,” he said. “I would like to reiterate that we have no particular level of the rupee in mind, but we would like to ensure its orderly evolution and we have zero tolerance for volatile and bumpy movements.”

Das’ comments come at a time when the rupee has faced considerable pressure against the dollar due to record overseas investment outflows from domestic equity markets, amid elevated commodity prices and higher US interest rates.

The rupee, which earlier this week weakened to a new low of 80.06 to the dollar, has shed 7.1 per cent against the greenback so far in 2022. The pace of weakness in the domestic currency picked up over the last month, with the rupee losing two per cent over the period.

“In recognition of the fact that there is a genuine shortfall of forex in the market relative to demand because of import and debt servicing requirements, the Reserve Bank has been supplying US dollars to the market to ensure that there is adequate forex liquidity,” Das said on Friday.

“This is the very purpose for which we had accumulated reserves. You buy an umbrella to use it when it rains,” the RBI Governor said, adding that the external sector was well-buffered to withstand the ongoing terms of trade shock.

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