INDIA BUSINESS WORLD - JUNE 1st - JUNE 30th - 2008
OVERSEAS BORROWINGS BY CORPORATES TO GET COSTLIER
This comes at a time when the central bank is draining close to Rs 1,000 crore everyday by selling dollars to support the rupee. The cost of overnight money has gone up to 8.5%, and banks borrowed Rs 38,000 crore from RBI.
Aditya Birla Group president and head of finance Bharat Banka, however, feels that corporate growth will not be affected in the short term. “No sector other than real estate and construction has so far faced any problem in raising funds at a reasonable rate,” he said.
According to Hemant Mishr of StanChart, “The markets were positioned for monetary action after the higher-than-expected inflation numbers over the past few weeks. Given the government and RBI’s resolve to contain inflation, we expect more action and a policy mix of monetary, exchange rate and fiscal steps to contain inflation.”
With overnight rates quoting at 8.5%, the yield on the 10-year bond is expected to shoot up closer to 9% in the short term. Spreads on corporate bonds are expected to widen to over 75 basis points close to the 10% level.
“If inflation continues at the present level, I expect the yield on the 10-year bond to be in the 9-9.5% range,” said Ashish Vaidya of HDFC Bank. Dealers said the rate hikes would also push up the cost of overseas borrowings by corporates since hedging foreign currency would be more expensive.
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