Importers run for cover

MUMBAI, Aug 20: The rupee's sudden volatility has led to a panic situation where importers are running for cover. While corporates expected...

MUMBAI, Aug 20: The rupee’s sudden volatility has led to a panic situation where importers are running for cover. While corporates expected the rupee, which has been seeing upward pressures on the back of strong capital inflows, to depreciate marginally, they were unnerved by the overnight crash.

According to SS Bhandare, economic advisor with Tata Services, the weakening of the rupee is largely a knee-jerk reaction to the statements issued in the last few days on the forex market. "Some kind of an uncertainty has definitely been caused," said Bhandare, adding that fundamentally nothing significant has happened to cause this kind of a volatile situation. "There has not been any major change in terms of the corporate sector’s requirement for imports," he said.

However, some others fear that the oil pool account situation may weaken the rupee. The government is expected to issue bonds to the oil companies to clear their oil pool dues and repay their borrowings. "This could lead to a demand for dollars to the extent of $2.5-3 billion. The rupee could thus depreciate to the level of Rs 36 per dollar," said Bhandare.

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Nocil executive director (finance) VR Gupte said that there has been a scramble for cover among corporates in the last eight days fearing a depreciation. This has led to volatility in the money market. Most companies had booked exposure to the extent of 50 per cent while the balance was kept open.

"The demand-supply situation wherein there was more demand for rupess had created a problem for exporters. Had the RBI not intervened, the rupee would have appreciated to Rs 35 per dollar," said Gupte.

Capital-intensive industries like steel, automobiles and telecom are likely to suffer a setback in case of a depreciation. Industries dealing in commodities would benefit. Fertiliser imports, if taking place, will also affect the government. Analysts, however, feel that the fluctuation is not so big as to allow export-oriented units to make hay. Crompton Greaves CMD KK Nohria said that the sudden drop in the rupee today was a spontaneous reaction to the news that the government would fix a band to signal the exchange rate. However, he felt the rupee would stabilise soon and not depreciate further. Nohria maintained that India will not face a currency fall of the kind noticed in the South East Asian countries.

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