The Indian rupee closed at 71 a dollar level on Friday, amid nervousness that it could fall further. The rupee has fallen more than 10 per cent year to date, making it the worst-performing currency in Asia and one of the worst-performing among emerging markets.
Although there is no panic in the market, as hedging discipline has improved vastly from earlier, importers have started buying options. According to currency dealers, there is no mad scramble to buy protection against rupee volatility.
“Hedging activities are going on as normal. I don’t see too much of any one-sided position, or overly unhedged position, with anybody,” said Ashish Parthasarthy, treasurer, HDFC Bank.
The movement has been sharp for the rupee this week, but it gave enough indications that the exchange rate would worsen, giving ample time for hedging.
“Importers were under a false sense of security that the regulator would manage volatility, but the RBI never promised any stability. Exporters hedged, importers didn’t. But the markets also give enough time. The rupee was trading at 68.50-69.90 a dollar levels for quite some time, giving ample time to importers to cover their exposures, which they did,” said Ashish Vaidya, head of markets for DBS Bank.
Vaidya expects the rupee to maintain 70 levels in the coming days too, unless there are strong global reasons for investors to be bullish on emerging markets.
According to Samir Lodha, managing director of IFA Global, till 70 a dollar level, importers had not panicked. However, “some amount of panic is getting visible now”, added Lodha.
The rupee has come under pressure due to a multitude of factors. The current account deficit is expected to touch 2.5 per cent of the gross domestic product (GDP), up from 1.9 per cent now.
The trade deficit has also widened to $18 billion, from its normal $11-13 billion, thanks to rising oil prices. Brent crude crossed $77 a barrel, threatening a wide fiscal deficit for the financial year.
“The first leg of correction, up to 69-70 level, was warranted as markets were punishing countries running twin deficits. But the markets always tend to overshoot, particularly when the move is part of a global sentiment,” Vaidya said.
The rupee’s movement is exacerbated by other emerging market currencies. The Argentinian peso and the Turkish lira have come under pressure recently, and that is impacting other currencies as well.
“In terms of macroeconomic fundamentals, we are in a much better position that we were in 2013. Of course, rupee movement will impact various economic agents differently, but we will have to wait and watch how further the exchange rate can move. There is no need to panic,” Parthasarthy said.
Currency dealers say the RBI is intervening in the market regularly, but the intervention is not heavy enough to strengthen the rupee back and help the exchange rate sustain at those levels.
“The rupee is now getting clubbed with the lira, rand, peso … which is sad,” said Lodha.