The rupee fell to a 21-month low on Tuesday to aid foreign exchange earners, but exporters, smarting under severe earnings erosions last year, aren’t rejoicing yet because they had hedged against a rising rupee to cut risks – and paid premiums for that. The rupee ended at 44.84 per US $ falling by 12.1 percent this year, wiping away most of last year’s gains.
The rupee started depreciating in the last quarter of 2007-08. After trading in a range of Rs. 39.89-40.02 to a $, the rupee broke above the value of Rs. 40 per $ in the last week of April.
The rupee has steadily fallen since then, reflecting large capital outflows by foreign institutional investors ($ 5.2 billion during the first quarter of 2008-09), increased demand for dollars by the oil companies and bearish stock market conditions.
Reserve Bank of India Governor Duvvuri Subbarao said on Tuesday that the central bank's exchange-rate policy has served it well so far. The policy to intervene in the foreign exchange market to stem volatility will be continued, he told reporters in Mumbai.
Exporters, however, were not cheering the fall of the rupee as many forward contracts bought to hedge against a rising rupee were signed at levels of much higher than the current value. President of Federation of Indian Export Organisation (Fieo) President Ganesh Kumar Gupta said government should continue to offer fiscal assistance to the exporting community.
The fact that rupee has depreciated in past two months should not hasten a decision to withdraw the existing sops. “We would suggest that government should watch the situation at least till March 2009 on exchange and employment front before arriving at any conclusion,” Gupta said.