$ Fall, Depreciation Hits Rupee
The recent rupee depreciation at home and the dollars fall overseas following the international stock market crisis have caused the rupee to slip substantially against the currencies of Indias major trading partners, the US, United Kingdom, Germany.
Banking sources said this is causing concern to corporates which are facing an export slowdown and rising import costs. Sources said that since the depreciation has been quite significant, the rise in cost of imports could with some lag, affect local pricing.
A banker with a top public sector bank pointed out that with inventories piling up forcing corporates to contain prices, higher import costs will put further pressure on corporate spreads. Over the last three months the rupee has depreciated by about Rs 4 against the pound and Rs 2 against the deutsche mark. Its movement against the yen, however, has been rather volatile. Yesterday, at 5:30 pm, the rupee quoted at 61.04 against the pound, 21.02 against the mark, and 29.7 per 100 yen, and 36.385 per dollar. Upto three months ago, the rupee appreciated against major world currencies. On August 19, it touched a high of 57.34 against the pound, 19.46 against the mark, and 30.15 per 100 yen.
That day, the rupee ruled strong at home against the dollar also, closing at 35.715 per dollar. In percentage terms this works out to depreciation of 7.5 against the pound, 8.01 against mark, -1.49 against the yen, and 1.88 against dollar.
The rupees movement against pound, mark and yen, is determined by its position vis-a-vis the dollar, and the dollars position vis-a-vis those currencies. Overseas, the dollar took a beating following the international stock market crash.
At home, the rupee saw some volatility in recent times on account of market perception of an overvalued rupee as well as some demand for the greenback in recent days.
While most of Indias trade continues to be in dollar terms banking sources say corporates are increasing their exposure to currencies other than the dollar by way of foreign currency loans and also by way of foreign exchange earnings and remittances. While depreciation may raise exporters income, bankers say export growth has not been all that spectacular, and importers are bearing the brunt of rupees fall. Bankers say that in times to come the rupee will see more volatility and corporates will have to look for hedging mechanisms.
Corporates are aware of this. A senior treasury official at Essar said, The rapid up and down movements of the rupee against these currencies is forcing corporates to look for ways to efficiently manage their loan portfolios. One way which corporates are hedging against such movements is by going in for cross-currency swaps. Such cross-currency swaps are picking up say bankers.