Report: Indian Importers Should Increase Hedges As the Rupee Recovers

Analysts stated on October 27, 2022, that Indian importers should take advantage of the rupee’s recovery against the greenback to hedge their liabilities due this year.

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Indian Importers Should Increase Hedges As the Rupee Recovers

The rupee was trading at 82.3250 per US dollar, up from 82.7250 in the previous session and the previous week’s low of 83.29. The indigenous unit had started at 82.15.

“It makes sense for importers to take advantage of this drop (in the USD/INR pair) and increase the proportion of their hedges,” said a foreign exchange sales associate at a Mumbai-based non-public sector financial institution. “We recommend that they book a significant portion of their exposure due until December.” 

The threat of rising oil prices, India’s large trade deficit, and capital-flow issues suggest that the rupee’s outlook remains bleak, according to the banker. Kunal Kurani, associate VP at Mecklai Financial, stated he is inclined to advise the firm’s clients to buy dollars at current levels but is waiting to see how different Asian currencies move throughout the day.

The rupee’s recovery from record lows has been aided by expectations that the US Federal Reserve will likely hike interest rates gradually after November.

Nonetheless, the Fed is expected to raise rates by 75 basis points the following week. Analysts believe that the next two inflation readings will determine whether the US Federal Reserve opts for a smaller rate hike in December.

The banker stated that there is still enough uncertainty on the Fed’s side for the rupee.

“A drop in the USD/INR and the current rise in crosses (EUR/INR, GBP/INR) are good levels to hedge appropriately,” said Srinivas Puni, managing director at QuantArt Market Solutions, noting that US inflation was “far from under control.”

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