European Central Bank Faces Dual Challenge Amid Structural Trends, Says Dolenc

European Central Bank (ECB) policy faces challenges due to structural trends, including low productivity, according to ECB Governing Council member Primoz Dolenc. These trends limit the effectiveness of monetary policy and increase the need for more frequent interventions to respond to shocks. Dolenc notes that ECB policy is currently in a "good place" but acknowledges the challenges ahead.

The Reserve Bank of India (RBI) has proposed significant reforms to the External Commercial Borrowing (ECB) framework, aiming to make it easier for companies to access foreign funds. The new draft proposals, released late last week, suggest removing cost caps, widening eligibility, and tying fundraising limits to the financial strength of the borrower Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

Governor Sanjay Malhotra, during Wednesday's monetary policy announcement, hinted at these changes, which are part of a broader regulatory overhaul. The proposed ECB framework seeks to increase the borrowing limit to $1 billion per financial year or up to 300% of the borrower's net worth, substantially higher than the current ceiling of $750 million Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

One of the key changes is the elimination of cost caps on ECBs. Previously, the RBI mandated a maximum spread of 450 basis points over the benchmark for foreign-currency ECBs and over government securities yield for rupee-denominated ECBs. Under the new regime, interest rates and spreads will be based on market-determined levels, offering greater flexibility to borrowers and lenders Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

The draft proposals also seek to shorten the minimum maturity requirement for most sectors to a floor of three years, with manufacturing companies allowed to have a maturity between one and three years. Additionally, the RBI wants to permit wider use of ECB proceeds, allowing them to be invested abroad in deposits, certificates of deposit, or high-quality treasury bills of up to one-year maturity, or used in foreign branches or subsidiaries of domestic banks Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

The proposed changes also expand the eligible borrower and lender base. Companies undergoing restructuring or investigations will be allowed to raise funds through ECBs, a departure from the previous norms. Eligibility for tapping the ECB markets will no longer be limited to entities allowed to receive foreign direct investment, and reporting and compliance requirements will be simplified Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

Moreover, the ECB currency can be changed to another foreign currency or the rupee, with the exchange rate determined by the prevailing market rate on the date of the agreement Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

If adopted, these changes could unlock significant capital for domestic firms seeking foreign financing, offering more flexibility in borrowing terms, interest costs, and fund deployment. Major ECB borrowers this year have included Reliance Industries, Oil India, the Indian Renewable Energy Development Agency, and even microlender Credit Access Grameen Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].

The final version of the new ECB framework will depend on feedback from stakeholders, which has to be submitted via email by October 25 Sweeping ECB reforms: RBI moots $1 billion cap, wider eligibility, easing fund usage^[1].