Rupee Likely to Remain Stable This Year

A relatively stable exchange rate greets the New Year erasing memories of wild swings last year.

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

While this will help burnish the allure of domestic securities to overseas investors, companies can breathe easy on their US exposure.

A stable currency is key to woo overseas investors, who choose not to cover exchange rate risk enhancing investment returns.

The Bloomberg Implied Volatility Index is a gauge of market expectations on future swings in the rupee-dollar exchange rates.

The rupee gained 0.63%, or 44 paise, to close at 69.73 a dollar on Friday. The local unit plunged to record low at 74.48 on October 11 last year.

The Indian rupee has lost 8.3% 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 year with a 2.12% fall.

Surging crude prices turned investors sceptical on New Delhi’s ability to keep current account deficit or excess of overseas expenditures over revenues under check. India is a major oil importing country.

Global crude prices peaked at $86 per barrel on October 3, but have slipped 34% since. Such sharp dips consequently pulled down consumer prices.

Retail inflation plunged to a 17-month low in November to 2.33%, mainly on account of decline in prices.

Importers too have started shying away from taking currency covers against their overseas payables, 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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