Rupee moves corner, likely to remain constant this session

The local unit plunged to record low at 74.48 a dollar on October 11 last sessions.

A relatively constant exchange rate welcome the New Year eradicating memories of wild swings last session. A constant currency is key to woo overseas investors, who choose not to cover exchange rate risk enhancing investment returns.

The one-month Bloomberg Implied Volatility Index plunged 125 basis points to 8.28 per cent in the past four weeks to the New Year suggesting the local unit is likely to be constant this year. A basis point is one hundredth of a percentage point.

While this will help lustrous the charm of domestic securities to overseas investors, companies can breathe also easy on their US exposure.
“In the New Year, overseas investors too would begin with new deployments amid receding signs of fears on emerging markets including India and Indonesia. Indian companies are unlikely to rush for currency covers, saving cost on imports.”
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“Oil price fall and lower inflation print have collectively helped the rupee to stabilise,” said Ashutosh Khajuria, ED and CFO, Federal Bank. “The free fall of the rupee has stopped, reversing the broader trend. RBI too has stayed off from sharp interventions as it is not required.”

 The rupee gained 0.62 per cent or 44 paisa to close at 69.73 a dollar on Friday. The local unit plunged to record low at 74.48 a dollar on October 11 last year.

“Major worries like higher oil prices, emerging market weaknesses are now things of the past,” said Anindya Banerjee, currency analyst at Kotak Securities.
Indian rupee lost 8.3 per cent between April and October against the greenback ranking as Asia's worst performing currency. The local unit later recouped some of its losses ending the session with 2.12 per cent fall.

Importers too have started shying away from taking currency covers against their overseas pay ables, known as hedging in market parlance, dealers said.

Hedging has a cost. In absence of it, companies save money on imports.

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