The Hindu Business Line : More exporters invoice in euros

Bankers here said that some of the large garment exporters have also begun shifting to the euro. So far only some of the diamond and commodity exporters had shifted to invoicing all their receivables in euros.

As a result ero trading volumes are also on the rise in the domestic foreign exchange markets. Till about six months ago only about 15 per cent of the trading volumes were euro-denominated. Presently, traders said that close to about 40 per cent of the trading volumes in the domestic forex markets were in euros.

Daily inflows, which included both current and capital account, into the country are currently estimated at about $50-60 million per day. While this figure was down from the levels in March when it was about $250-300 million per day, euro-denominated flows had remained steady in absolute terms, bankers said.

Traders said that one reason for the shift in preference was the euro's movement against the dollar. One euro is currently equivalent $1.23, up from $1.08 a year ago.

Further, between April and September, the euro has advanced by at least 6 per cent against the rupee. On the other hand, the dollar has advanced only by about 4.2 per cent. Presently the euro is quoted at Rs 56.43 in the domestic forex markets.

Bankers said that the shift was also induced by the rising exports to European destinations. All invoices to countries forming part of the European Union are drawn in euros. Bankers said that though exporters and importers had a choice of dollar invoicing, the preference was for euros.

This preference was induced by apprehension that the dollar was likely to weaken further in the coming months.

Evidence of the concern was available in the NDF (non deliverable forward markets), where the dollar has moved into a discount against the rupee. NDFs implied that forward dollars would be made available at a premium to the domestic market spot prices. The spot rates in the NDF markets are presently Rs 46.31, almost the same as the one month forward rate.

This trend in NDF markets normally implied an impending appreciation of the rupee against the dollar. Consequently most exporters, like diamond and commodity including garments preferred to hedge against currency volatility by denominating in euros, they added.

Besides, traders said some of the non-resident Indians were holding foreign currency account in the domestic banks in euro-denominations. This was because they also anticipated the rupee to depreciate against the euro and appreciate against the dollar. Bankers said that some of the depositors hoped to recoup their losses due to low interest rates by exchange rate gains.

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