The sharp rebound in the Indian currency, from its record low of ₹87.93 per dollar in the middle of February, gives a window for companies to hedge their positions, even as the long-term outlook for the rupee remains weak, according to currency traders and treasury heads.
The rupee closed at 85.36/$1 on Thursday, while the dollar-rupee forward premiums declined with the 1-year implied yield easing to a one-month low of 2.13%, LSEG data showed. Money markets were shut for Good Friday. Expectations are that the rupee’s bounce is temporary. Standard Chartered Bank expects the rupee to be at 87.75/$1 by the end of 2025, while MUFG Bank forecasts a level of 87.50/$1.
“This is a wonderful opportunity for importers to cover their positions, and anything around 85.50 to 85.25 is an extremely good level to hedge your imports,” said Sajal Gupta, head of forex and commodities at Nuvama. “I don’t see the rupee appreciating beyond 85 levels and sustaining there, so importers should make most of this appreciation.”
Rupee volatility, as measured by the one-month implied volatility, rose to 4.5%, the highest since August 2023, LSEG data showed, due to two-way swings, as traders cope with implications of the trade war. The local currency has traded in the near 2-rupee range in the last couple weeks, from 84.96/$1 to 86.70/$1.
Although exporters remain largely on the sidelines, recent two-way volatility in the rupee has prompted many to hedge their positions. However, they continue to adopt a wait-and-watch approach, anticipating further depreciation of the currency.Exporters are waiting for the rupee to depreciate to levels beyond 86.50 to 86.80 to make more of their dollar earnings. Traders, however, do not expect the rupee to dip past the 87/$1 mark anytime soon.Anil Bhansli, head of treasury at Finrex Treasury Advisors, is asking his exporter clients to wait and start hedging whenever the rate goes beyond 86/$1. “I have seen that the rate is not crossing the 86-mark for a few days now, and this is making the exporters a bit panicky,” he said.
“Exporters are sitting on the sidelines, waiting for a bounce-back for future receivables and converting them at 86+ levels. Recently also the rupee had bounced back from 85 levels to 86.80 levels. The 87 levels, however, don’t seem to be coming soon,” said Ritesh Bhansali, deputy CEO at Mecklai Financial Services.
However, exporters cannot hold off converting due to capital requirement. “Conversion by exporters is happening even at a lower value, because ultimately money is important and cash requirements are always there,” Bhansali said.
