The Hindu Business Line : Rising rupee: Tougher times for exporters?

The rupee has not only been giving the dollar a sound drubbing in the recent past much to the chagrin of exporters, but it has also been gaining steadily against international currency majors such as the pound sterling and the euro.

The domestic currency has appreciated by Rs 2 against the euro since the beginning of this month, and by around Rs 3.50 against the pound sterling in the same period. On March 1, the euro was at $1.2450 (Rs 68) and on March 25, it touched $1.2100 (Rs 66). Similarly, the pound sterling was ruling at $1.8700 (Rs 84.36) on March 1, and was at $1.8000 (Rs 80.80) on March 25.

The rupee's current status against the three global currency majors is largely due to a recent correction in the values of the euro and pound sterling against the dollar. According to analysts, the regulators in these countries perceived that their currencies were appreciating too quickly against the greenback. Due to this, these currencies were allowed to weaken against the dollar, and it is anybody's guess how long this will go on, analysts contend. These cross-currency movements have had a positive impact on the value of the rupee.

But hold on to your hats! Currency experts are taking a conservative view that it's too soon to predict how the dollar may behave in the next six months or so.

"This is a very short time-frame we are looking at and it is difficult to forecast for sure whether the dollar will continue to strengthen against these international currency majors or not," said an analyst.

However, there seems to be some consensus among forex analysts that the rupee will continue to gain against the dollar for the next couple of months, at the very least. Analysts argue, that since the US economy is wrestling with serious fiscal deficits, a reversal in the dollar movement against the rupee at least, can be safely ruled out in the medium term. "In the short-to medium term we have to watch the euro and pound sterling, since it is consciously being kept weaker," said an analyst.

However, bankers are of the view, that even if the rupee were to gain sharply against the euro and pound sterling, it will not have much of an impact on export earnings. "Around 85 per cent of the billing in the export market is still done in dollars. A very small percentage is done in the euro or pound. So what is really of consequence to the exporters is the way the rupee behaves against the dollar," said a senior official with a leading foreign bank.

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