MUMBAI – Indian exporters may need to adjust their strategy to manage foreign exchange risks, considering rupee forward premiums are likely to remain low relative to historical standards, some analysts said.
The dollar/rupee forward premiums — which reflect the US and Indian interest rate differential — have plunged from around 4.6 percent at the start of 2022 to about 2.1 percent currently.
This means Indian exporters will receive a lower rate when they hedge their future forward dollar receipts for the same level of spot.
The U.S. Federal Reserve has had to adopt a more aggressive interest rate-hike cycle relative to the Reserve Bank of India, pushing premiums in December last year to near their lowest in more than a decade.
Premiums are not expected to move back to the 4 percent-5 percent level given the inflation outlook and the likelihood that the Fed will keep rates higher for longer.
“With premiums low and the likelihood that they will remain low, Indian exporters will have to adapt,” said Jamal Mecklai, founder and chief executive of risk management firm Mecklai Financial.
“Historically, a premium of 4 percent-5 percent provided a bit comfort to companies that wanted to hedge some part (or all) of their exposures, despite expectations that the rupee will depreciate.”
Now with premiums at 2.1 percent, it is not advisable to hedge for longer maturities like 12 months, he said. – Reuters
