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C. Shivkumar

Bangalore, Aug. 14 Importers have begun unwinding their forward cover with the rupee’s appreciation against the US dollar.

The unwinding was triggered by the rupee’s appreciation against both the dollar and the euro since the beginning of this month. The rupee has appreciated by 2 per cent against the dollar and 7 per cent against the euro.

The unwinding resulted in pushing down forward premium for six months to 3.95 per cent from 5 per cent in the last week-end. Traders said oil refineries and corporates with foreign currency debt exposures were among those unwinding forward covers. They also said that some exporters also took forward covers in view of the soft dollar interest rates.

In fact most exporters, traders said were repatriating their earnings back in to the country. What made the repatriation attractive were the high interest rates. This was evident from the high short-term deposit rates for bulk resources. Some of the domestic banks were offering rates as high 11 per cent for three-month bulk deposits, through certificates of deposits (CD).

Traders said that the unwinding by refiners was also triggered by the sharp drop in international oil prices. The import basket price is currently about $806 a tonne, down from the July average of about $975 a tonne. Refiners had sold some of their dollar in the spot markets and taken forward cover for up to three months.

Some refineries had parked the funds in domestic treasury bills and CDs as part of the treasury management efforts. Refiners had accumulated cash surpluses of close to Rs 21,000 crore after the Reserve Bank of India’s special market operations since the beginning of June this year. The SMO was done through purchase of oil subsidy bonds and a simultaneous advance of foreign exchange to them for meeting their import payment requirements.

Refineries mostly picked up the 91-day T-bills. High non-competitive bids were partly due to refinery interest in the 91-day T-bills. At Wednesday’s T-Bill auction, the cut-off yield on the 91-day yield dropped to 9.14 per cent from 9.36 per cent on August 1. During the same period, non-competitive bids also increased from Rs 800 crore to Rs 2,150 crore.

Traders said the rupee’s buoyancy was also supported by non resident inflows. The inflows and conversion to rupee deposits were largely on account of the interest differentials. Non-resident rupee deposit accounts currently offer about 4 per cent. Some of the NRI inflows were also in anticipation of the mega initial public offerings by public sector entities such as Bharat Sanchar Nigam Limited, traders said.

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