The rupee is trading with a weaker undertone as US inflation grew 6.2% YoY and 0.9% MoM in October. The US inflation was at a 31-year high, kindling fears of interest rate hikes in the US immediately after the completion of tapering of Fed’s asset purchases in June 2022. Chinese factory prices deepened concerns over higher inflation globally, which could lead to interest rate hikes by major Central Banks. But the dollar inflows from IPOs and another fundraising round of a few technology startups may not allow the rupee to weaken beyond the 74.80 level.
After registering a high of 73.8475 on Tuesday, the rupee fell to a low of 74.55 so far in the day and dollar demand from importers and oil companies could take the rupee further lower. It was rumoured the intervention from RBI at close to 74.10 level led to a down move in the rupee amid signs of receding dollar inflows in the coming week.
In the last 3 to 4 days timeframe, we have continuously highlighted our recommendation for the importers to hedge their short-term payables spread upto 3-month maturities as the rupee is expected to drift lower due to intervention from RBI which is seen materializing now. We understand that many of the exporters have covered their medium-term export receivables at close to the forward exchange rate of 76.00 or better. The unhedged export receivables if any, is strongly recommended to be hedged at a spot target level of 74.80 plus which can be seen after the dollar inflows recede over a period of time. Combined with the higher forward dollar premium available for medium-term maturities, the forward exchange rate for the medium-term export receivables would be attractive to enhance export realization.
After witnessing a deluge of dollar inflows coming into the market, RBI has started adding dollars to their reserve kitty as the exchange rate at close to the 74 levels seems favourable for their book. More so, the Central Bank may prefer to maintain a competitive exchange rate to encourage export growth in the economy, given the scenario of higher oil import bills and a rise in non-oil imports due to a sharp rise in commodity prices globally.