Dollars dry up as exporters keep away

It may be recalled that the RBI in the first week of January had directed banks to square up their positions or bring it to near-square levels at the end of each day. The near-square position was meant only for pipeline transactions, nostro-funding after banking hours in the country, and for amounts not in marketable lots.

"As the sustained corporate demand for dollars is expected to remain, the rupee is likely to remain under pressure. This means the RBI will have to use its forex reserves to prop up rupee. It will have to sell dollars to push down the dollar value," said a dealer. Compared to the rupee’s fall to 40.10/15 to the greenback today from Rs 35.78 in end-April, the Indonesian rupiah has in the same period dropped by 64.29 per cent to 6,900 to the greenback from 2,460 in end-April. The Malaysian Ringitt fell by 41.86 per cent to 4.30 from 2.5, the Thai Baht by 47.92 per cent to 50 from 26.07, and Korean Won by 45.96 per cent to 1,660 from 895.

Most senior forex experts felt that "export competitiveness can only be ensured through enhanced productivity and product-quality". They added that "given that export-import forms a small part of the gross domestic product, devaluation per se is not going to confer any great advantage". There is no evidence to suggest that exports perk up with a fall in the rupee.

During the period April to October 1996-97, the country’s exports stood at $19,898 million. First half export figures (April-October) for 1997-98 stood at $18,917.1 million, an increase of 6.8 per cent over the previous comparable period. However, during 1997-98, the Indian unit has fallen (April ’97-January ’98) by well over 10 per cent to 36.36 in end-October from 35.78 in end-April and lower to 40.17 today. In other words, a sharp fall in the rupee has not translated to any sharp increase in exports.

Also the rise in forward premium on dollar has made it difficult for banks to purchase dollars for their importer clients. Bankers are also refusing to book forward for them at the usual rates. The situation in the forward market is quite contradictory to the RBI policy for a low intrest rate regime. "Let the RBI not indicate a spot rupee level, but it has to take measures as far a reining in the forwards go," a corporate treasurer with an oil company said.

Importers are refusing to buy future dollars paying a high forward premium of 11-12 per cent. They prefer, instead, to keep their positions open rather than buying dollars at exhorbitant premiums.

Earlier, when banks were allowed to keep overnight positions, the inter-bank market could absorb some of the demand. The banks then had the option of purchasing forwards for their clients even at lower than market rates, when market rates shot up on account of technical reasons.

Meanwhile, leading industrialists said on Wednesday the rupee should stabilise at the new, weaker level after it breached the crucial Rs 40 per dollar barrier.