Buyers Credit Interest Rate Fluctuations (Recent Scenario)

With the increase in the liquidity crunch in the International Markets in the last few months (toward the end of 2011) where we had seen the interest rate ceiling shooting up from LIBOR + 200 Bppa to LIBOR + 350 Bppa.

This sudden increase has been instrumental in impacting the imports in India and forced the Importers to reduce their earlier interest rate arbitrage (Arbitrage is the difference in the interest rates in INR Vs Interest Rates in Foreign Currency).

The USD Vs INR rates was also the reason why the rates shot up so drastically from L+200 to L+350 bppa. It was during this time when we noticed the USD Vs INR touching its peak rate of 1 USD = 53.40 INR.

It is our personal opinion that such a high level of fluctuation only causes loss to the economy as in case of Exports, the Overseas Buyer starts negotiating the price (as noticed under general trade practice in case of exports from India).

At the time when the Exports is taking a Hit, the importer is hit by increasing interest rates on Buyers Credit and followed by high currency rates which has direct impact on Indian Economy as our GDP has highest contribution towards imports of Oil which makes our Balance of Payments even further negative.