As rupee rains woes, importers run for cover

MUMBAI: The rupee’s slide past the 70 mark to the US dollar has prompted Indian importers to seek medium-term cover for overseas payment liabilities as fears grow that the local unit is unlikely to rebound in a hurry. Companies are buying monthly forward contracts instead of fortnightly deals to help negotiate short term volatility, traders said.

“Hedging interest has increased among importers, who now expect the rupee depreciation against the dollar to continue,” said Anindya Banerjee, currency analyst at Kotak Securities. “The forward premium has also gone up in an early sign that demand for covers is rising.”

The rupee touched a record low at 70.86 to the dollar on Thursday amid strong month end demand for the US currency in both onshore and offshore markets. It closed 0.20% lower at 70.74 versus 70.59 on Wednesday. The unit has already lost about 10% this calendar year, and counts among the worst performing emerging market currencies. The forwards premium has gone up by two-four paise in the past two-three days in one-, two-, and three-month maturities. It is likely to climb further if the rupee were to slide further.


Fresh Concerns
Companies now buying relatively longer-maturity currency forwards contracts are from sectors such as petroleum, electronics, coal, agri-products and shipping logistics, dealers said. “Importers are now rushing to buy two-three month forwards contracts unlike shorter maturity contracts a few weeks ago,” said Abhishek Goenka, CEO IFA Global, a Mumbai-based forex consulting firm. “Higher demand will drive the forwards premium higher.”

Separately, rising crude oil prices have raised fresh concerns over India’s fiscal condition as the country meets three-fourths of its oil demand through overseas shipments. Brent crude rose more than half a percent to $77.62 a barrel on Thursday. The gauge has climbed nearly 10% in the past two weeks.

“There is pressure on the rupee amid the general weakness in emerging market currencies,” said Bhaskar Panda, senior vicepresident, treasury advisory group, HDFC Bank. “Overseas exposure should be covered in such uncertain times.” According to Panda, the rupee may trade in the range of 70 to 71.50 in the next few weeks. The RBI is seen intervening in the market, but only intermittently. “The central bank is letting the rupee fall when currencies of other emerging markets are also declining,” said the treasury head at a foreign bank. “But when it is a one-off plunge, the central bank is coming to the rupee’s rescue.”