Brokerages and bankers alike say they are advising exporter clients to either short hedge or not at all, as it has become difficult to predict the rupee’s final normal range, while the only certainty was that It will decline.
Brokerages and bankers alike say they are advising exporter clients to either short hedge or not at all, as it has become difficult to predict the rupee’s final normal range, while the only certainty was that It will decline.
Indian exporters are holding off on selling the dollar on anticipation of further depreciation in the rupee as the local currency has depreciated this year.
Once the Reserve Bank of India stopped protecting it at 82.40, the rupee crossed the 83 per dollar mark in dramatic fashion on Wednesday.
The next day it touched a record low and is expected to further drop to around 84.50 by the end of this year.
Brokerages and bankers alike said they were advising their export clients to either short hedge or not at all, as it has become difficult to predict the rupee’s normal range, while the only certainty was that it would There will be a decline.
“We are advising exporters to partially hedge only about 15%-20% of their exposure,” said a treasury sales executive of a large private bank.
The rupee has had several woes – the US Federal Reserve remains on its aggressive rate hike trajectory, widens current and trade account deficits domestically and foreign investors continue to dump riskier assets on fears of a global recession.
A weaker rupee will help exporters as it increases their income. So with a steady decline in the times to come, they prefer to hold on to their dollar for a longer period of time.
The problem increased due to the intervention of RBI
RBI is intervening in both spot and futures markets to protect the rupee from sharp fall.
Futures premiums have fallen to their lowest point in more than a decade due to the buy/sell swap in the futures market, making dollar selling even more attractive.
The USD/INR 1-year forward implied yield currently stands at 2.45%, falling from 3.07% earlier this month and sharply down from 4.75% at the beginning of 2022.
The falling premium has created a shortfall in the dollar supply, causing further losses to the local unit.
“After the rupee breaks 80 per dollar, they (exporters) have reduced market exposure (frequency) as premiums have crashed. Unless we give them at least 3%-3.5% yield No one is interested in selling dollars, said Abhishek Goenka, founder and CEO of forex advisory firm IFA Global.
He said the demand for imported goods remains intact, but exporters are not ready to give up their dollars, which is creating an artificial imbalance. Hence the rupee is depreciating.
The rupee has depreciated around 12% against the dollar, almost in line with its Asian counterparts.
Goenka said a currency strengthening from Rs 1 to 1.5 would “change the game” and create a “fear of missing out”, prompting exporters to sell dollars.
Kunal Kurani, Associate Vice President, Mekalai Financial, said the firm is encouraging its clients to keep their dollars in Exchange Earner Foreign Currency (EEFC) accounts and convert them only when the USD/INR rate rises.
RBI allows exporters to keep their foreign earnings in EEFC account for one month.
It has become difficult to ascertain the level of the rupee’s movement, Mr. Kurani said.
“The call is to hedge above 83.50 … but this is being done on a conservative basis to protect the client’s bottom and margin.”