Citigroup lauds ECB norms relaxation for infrastructure

Mumbai, Sep 23 (UNI) Analysts at the Citigroup today lauded the latest move of the Reserve Bank of India (RBI) to enhance the borrowing cap for External Commercial Borrowings (ECBs) for infrastrucutre to USD 500 million for rupee expenditure and said it would help in arrested rupee appreciation.

Though the measure, continuing with measures taken last week in making NRI deposits more attractive and providing additional liquidity, might not see a surge of ECBs, the easing of the ECB rules would be rupee positive and supports Citigroup's view of the unit re-tracing back to Rs 43-44 levels by March, it said in a release here.

The relaxation in norms was long overdue as financial market conditions have changed dramatically since August last year, when the ECB restrictions were put in place. Foreign exchange reserves (excluding gold), which had increased by USD 107 billion in FY-08 are down USD 19 bn in the first six months of this fiscal.

The ECB restrictions resulted in recourse to domestic financing where rates were 300-400 bps higher as compared to the overseas route. Higher rates coupled with a rise in input costs have taken their toll on investment growth with growth coming in at single digits in Q1 FY-09 versus a CAGR of 17 per cent during 2003-08.

It said ''However, as regards growth, new rules are positive for the investment upturn and may help stem the deceleration seen in investment growth. In addition, raising the limit for use onshore to USD 500 million would support the domestic capital goods story.

UNI VK ZA/SSS SKB1422