RBI forex intervention makes firms blind to rupee risks

MUMBAI — The Reserve Bank of India’s commitment to a stable rupee is having an unintended consequence: local companies are getting complacent about hedging their overseas borrowings. A gauge of expected rupee swings fell the most after Russia among 23 emerging markets over the last two years, thanks to the RBI’s regular interventions in currency markets and its success in boosting India’s reserves.

The unhedged foreign-exchange exposure of local corporates and investors combined rose $78 billion between April 2014 and September 2016, Standard Chartered Plc’s calculations show. With global risks such as the uncertainty surrounding US President Donald Trump’s policies, elections in Europe and monetary tightening by the Federal Reserve pointing to a tumultuous 2017, companies and investors could be in for a rude shock should the central bank let go of its rupee grip.

“A combination of market complacency and RBI intervention in the spot market to curb volatility” has contributed to rise in unhedged exposures, said Ananth Narayan, Mumbai-based regional head of Asean & South Asia financial markets at Standard Chartered Plc.