The Hindu Business Line : Rupee volatility spurs corporates to hedge foreign currency

"Amounts to the tune of $250-300 million has been hedged by corporates in past three or four weeks alone. The uncovered exposures in the forex market might still be in the range of $8-10 billion. Certain bankers are of the view that the figure could possibly be to the tune of $12 billion," said a treasury head with a public sector bank.

The market participant's view of an expected depreciation in rupee seems to have induced corporates, which are beginning to hedge their open positions in the recent period.

Rupee was trading at 45.00 against the greenback a month ago but on Friday, July 23 domestic currency had closed at a years low of 46.32/34 against the dollar, though it has recovered since but the market participants are sceptical that the currency will again see the one way upward move as it did in the past.

In the mid term review of the Monetary and Credit Policy 2003-04, the central bank had alerted corporates about the risk of sitting on huge unhedged exposures. At that time the corporates were betting on an appreciating rupee in the medium term, so were not too keen on covering their positions. The scenario has changed now, with the rupee depreciating against the greenback, which is showing signs of strengthening overseas.

Bankers concur that importers have been making moves to cover their positions. Unchecked the rupee might have weakened to 47.00 against the dollar, they said.

Depreciation in rupee is on the cards. It might be in a range of 45.80-46.50 for about a month with a movement of about 30-40 paise, with the forwards expected to move higher. Forex market participants expect the one-year forward to touch 2.00 per cent in a month's time.

"Exporters are staying away from the market while importers from oil and other sectors are hedging their uncovered positions. There is a major amount of unhedged exposures in the market; over 60 per cent of the positions are uncovered. Sudden moves in the market do not give a chance to corporates to cover positions at short notice," said Mr Mahesh Sawant, Manager, IndusInd Bank.