The Hindu Business Line : Exporters facing risk of unhedged euro exposure

Since 2003, exporters to Europe have been invoicing their shipments in euros instead of dollars. The switch over to the euro invoicing was initiated by diamond traders who normally push their exports to Belgium and the Netherlands.

Currently about 15-20 per cent of the external trade is being invoiced in euros and the remaining 80 per cent in dollars.

The euro invoicing was donesince at the point of time the rupee was appreciating against the dollar and depreciating against the euro.

However, banking sources said that since the beginning of this year, the rupee had begun appreciating against the euro as well, taking the sheen off export earnings. This was partly driven by the low interest rates in Europe and the non-debt capital flows from Europe to India. Besides, non-resident Indians in Europe were also remitting more funds into the country on a non-repatriable basis or holding it in the form of rupee deposits. Bankers said the euro depreciated by as much as 7 per cent against the rupee from Rs 56.37 to Rs 52. At the same time, the rupee has remained steady against the dollar between Rs 43.5 and Rs 43.76.

Traders said that few exporters had anticipated the euro to depreciate so much in a period of five months. Hence most of the exporters had left their euro-denominated exposures unhedged.

Bankers had advised exporters to begin hedging their euro exposures early this year, when the European Central Bank had kept its bank rates steady despite the series of hikes in the US Federal Funds rates and federal discount rate. Yet, despite this uncertainty over exchange rate movement, few traders expect exports to be affected. Mr V.R. Srinivasan, Director, BRICS Securities Ltd, said, "Exports will not be affected by the appreciation." Bankers said that exporters would now start hedging their exposures, unlike in the past.

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