The rupee was over the edge with savage selling in Indian equities and other financial assets. It sent importers into a hurry to buy expensive foreign-currency covers for unhedged liabilities because of payments. Thus, on Monday, the rupee fell from a cliff.
Mumbai stocks made their worst retreat. It plumbed the rupee level of 77 to a dollar NSE 1.83 %. Thus, afterward, over the weekend, it surged almost two percentage points. Now, the one-month premium is at 8.67 percent. Compared to last week, three- and six-month contracts quoted 85-38 basis points higher.
Bhaskar Panda is the executive vice president of HDFC Bank. He said that there was uncertainty in the availability of dollars. It raises the rate of interest differentials between India and the United States. Thus, the forwards premium has risen, and it is adding to the importers’ cost of hedging.
In the inter-bank forex market, the rupee opened on a week note at 75.90. Intraday plunged to 76.35. It was before it settled 1.46 percent down at 76.29 against the United States dollar, its lowest-ever close.
Anindya Banerjee is the currency analyst at Kotak Securities. He said that rupee is touching record lows. As he says, now in high demand are the forward contracts. With many proprietary traders staying away, the currency market is turning illiquid. The markets did not get the much-anticipated cut of the rate ahead of the policy. Thus, the cost of hedges increased.
Moreover, as select state-owned banks were seen selling dollars in large quantities, the central bank is said to have intervened in the spot market.
Panda said that most of the importing corporates would have covered their liabilities. Nevertheless, some small to medium-sized companies remain uncovered, and they rush to cover their near-term imports.
During the four weeks, the premium jumped 76-98 bps in six- and three-month contracts.
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Let’s see what happens in the future.