Exporters to UK feel the heat of falling British currency

KOLKATA: Amid fears of a recession in the UK, local exporters and companies with direct exposure to the British pound are facing a severe erosion in value of their receivables. The pound fell over 14% against the rupee in about 30 days. And, according to foreign currency experts, the worst is yet to come.

Exporters who were getting Rs 84.6 against the pound a month ago, are now getting Rs 72.5, a level seen in September 2003.

The only comfort is that merely 5-8% of the country���s exports are being carried out in pound-denominated transactions. So, the impact of the depreciation of the pound vis-a-vis the rupee is limited to that extent. If one takes a 120-day spectrum, the fall was even more severe. It fell more than 16% from Rs 86.4 on July 15. Experts suggest that exporters who have so far indulged in pound-denominated trade contracts should now switch over to dollar-denominated deals.

The pound has also fallen to a six-and-a-half year low against the dollar and traded to a record low against euro since the currency was created in 1999. The British currency started losing value with fears of UK recession gaining ground. ���The UK is expected to have the worst recession of all the G7 rich nations and this means investors think that UK assets will perform poorly,��� BBC News said.

NCDEX chief economist Madan Sabnavis said: ���Going forward, exporters to the UK should switch over to dollar-denominated contracts. The dollar vis-a-vis rupee, for the next couple of months, is likely to hover in a closed range.���

The fall in pound against all global currencies becomes more prominent ever since the Bank of England reduced interest rates by 150 basis points to 3% last week. This is the lowest interest rate level since 1955.

���The rate cut was followed by huge unwinding of pound sterling, leading to steady depreciation of the currency against major global currencies,��� said Development Credit Bank chief forex dealer Paresh Nayar.

Another reason why pound has been under pressure is the fall in global crude prices. ���Historically, global crude price and the pound sterling rise hand in hand. As the global oil prices fell below $60 a barrel, the pound will depreciate further,��� an economist with a private bank said.