India Development News & Foreign Investment Opportunities

Nine-Month High Rupee To Impact Exports

Traders concerned about volatility

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But traders are concerned about volatility

 

FIEO.

Turnaround in political sentiments, Foreign Portfolio Investment (FPI) flows coupled with the expected large inflows from rights issues and the merger and acquisition deals, reduced geo-political tensions, stability in oil prices have driven the rupee appreciation to a 9-months high.

Highlighting these encouraging developments, FIEO President Ganesh Kumar Gupta feel that the rupee could stay strong, as the flows continue.

The RBI’s decision for a currency swap to infuse rupee liquidity is expected to bring down hedging cost, prompting inflows in the short end of the corporate debt, thus augmenting the supply, he observed.

Such sharp appreciation is causing concern both among the exporters as well as importers as uncertainty in the exchange rate is driving volatility.

Exporters who have contracted at Rs.74 to a Dollar but could not hedge it, due to non-availability of limit by the banks, tend to incur huge losses.

Similarly, those who imported at Rs.74 to Dollar for exports few months back, will now get Rs.68-69 upon exports resulting in setback to them Gupta pointed out.

This is a new and additional challenge faced by the exporters who are struggling with contraction in global demand, liquidity challenge at the domestic turf and fierce competition from other competing currencies, he said.

The informal withdrawal of MEIS to apparel and made-ups have also jolted their exports.

He urged that while pegging is not possible, extreme volatility should be managed through interventions so that the exchange rate continues to provide requisite competitiveness to Indian exports since Rupee is nowhere near its real effective exchange rate.

Gupta said: “In the given situation, Rupee is set to appreciate further giving a jolt to our export efforts and, therefore, it should be ensured that Rupee remains near 70 to a dollar.” fiinews.com

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