At this point in time, we have to analyze the approach to be followed by importers and exporters to hedge their exposures at the opportune level. We strongly advise the exporters to target a spot level of 75.60 plus to sell their medium-term receivables and the overall forward exchange rate would prove to be beneficial and shall result in higher export realization. The unhedged import payables upto a 3-months period may be left unhedged with the tight spot loss at 75.80. At this point in time, we strongly feel any downward adjustment in global oil prices and possible RBI intervention shall make the rupee recover toward 74.80 level before the end of this month while the stiff support at 76.00 shall hold.
As the yield on US 10-year benchmark bond yield and the are trading a shade lower, the rupee recovered to a high of 75.1850 on Wednesday. The dollar buying from oil companies and corporates pulled down the rupee to trade above the 75.30 level. Rising commodity prices have led to concern about potential inflationary pressures. Due to tight supply fuelled by the global energy crisis, the sentiment of the rupee may weaken and a test of 75.80 is likely on the cards before any substantial recovery can be seen. The increase in the oil import bill by about 10 to 15% in the current calendar quarter as compared with the previous quarter, shall widen the trade gap and exert pressure on the rupee to depreciate. Only the intervention from RBI can prevent the rupee from its sharp fall beyond the 75.80 support.
Suddenly, the market has begun to express concerns about the overvaluation in the REER calling for a correction in the nominal exchange rate. On this count, the market is not expecting any determined intervention from RBI till the 76.00 support level is challenged by the market forces. However, any correction in the prices below the 80 level shall lead to an upward correction in the rupee toward the 74.80 level.
Though the CPI inflation eased to 4.35% in September, we feel the strong rise in global oil prices and the rise in food prices may hit lift the retail inflation higher in the coming months. The average inflation in the last 6 months period is about 5.5%, making the real interest rate negative for the investors.