Dealers expect rupee’s volatility to continue
After appreciating briefly, the Indian rupee is again inching towards the 74mark vis-à-vis the dollar, indicating that volatility will continue amid talk of taper tantrum and a risk-off sentiment induced by the Delta variant of Covid-19.
After appreciating briefly, the Indian rupee is again inching towards the 74-mark vis-à-vis the dollar, indicating that volatility will continue amid talk of taper tantrum and a risk-off sentiment induced by the Delta variant of Covid-19.
The rupee had rapidly appreciated in the last week of August, strengthening to 73 to a dollar on August 31, from 74.2 on August 26, after the US Federal Reserve’s Chairman Jerome Powell indicated that he was in no hurry to raise rates.
The rupee was appreciating even before Powell’s speech as dollars poured in because of a spate of initial public offerings (IPOS). The Reserve Bank of India (RBI) did not want to accumulate these flows, fearing taper tantrums after the US Fed chair’s speech, which never materialised.
The central bank has resumed accumulating the flows once again, currency dealers say. That has taken away the appreciation bias, even as the dollar has started strengthening and US yields have risen on safe haven concerns as the Delta variant continues to ravage parts of the world.
These push and pull factors have given rise to intraday volatility in the exchange rate, but sharp one-way movement is largely ruled out, dealers say.
For example, on Thursday, the rupee traded in the range of 73.49-73.85, and closed at 73.51. This kind of intraday volatility can be expected in the coming days as well, say dealers, but it won’t be a cause for concern. Outflows linked to dividend pay-out by Vedanta was also partially responsible for the volatility. However, there are lingering concerns on whether the rupee will see sudden depreciation like in July-august 2013.
“In terms of impact on rupee, we believe the taper would not be as disruptive as in 2013. India’s external position is much stronger now and, therefore, we have greater wherewithal to endure the taper. India is no longer among the fragile five nations,” said Abhishek Goenka, managing director and chief executive officer of IFA Global.
Still, currency consultants advised both their importer and exporter clients to cover their positions.
“Import payments for up to a month or two can still be covered fully for up to a month, and partially for 2-3 months’ tenor at dips below 73.50. Receivables can be covered partially up to 6 months at current levels; with 73.20/30 band as the risk limit for the unhedged part,” Mecklai Financial suggested to its clients.
Therefore, there is no firm view on rupee levels yet. For example, Anindya Banerjee, deputy vice-president, currency and interest derivatives at Kotak Securities, guided that the rupee could “operate within a range of 73.20 and 74.00 levels on spot.”