The coming dollar crunch

One of the biggest challenges that Indian policymakers will likely face this year is the management of dollar liquidity. Indian companies have borrowed heavily from the global debt markets in recent years to take advantage of low interest rates in the US, Europe and Japan. Much of this borrowing has been in dollars. In its latest Financial Stability Report released at the end of December, the Reserve Bank of India flagged its concerns on this front: “The current environment of risk aversion and depreciation of the Indian rupee could complicate the refinancing challenges faced by Indian corporates with regard to their foreign currency convertible bonds (FCCBs) and external commercial borrowings (ECBs). 

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