The choppy trading of the Indian rupee last week in the wake of the national election results prompted importers and exporters to hedge more of their foreign exchange book in the forward market, data showed.
Importers bought $9 billion worth of foreign exchange forward contracts last week, a jump of more than 70% from the same period a year earlier, data from clearinghouse CCIL shows.
Exporters covered $6 billion, matching the year-on-year increase in importers.
The pick-up in hedging activity came in a volatile week that began with the rupee rallying to 82.9475 per dollar on Monday after exit polls indicated a comfortable majority for the prime minister’s party. Narendra Modi and his allies.
But official results on Tuesday showed the ruling alliance party barely clinging to its majority, sending the rupee tumbling to 83.53.
That range is more or less in line with the 83.00 to 83.50 range the rupee has maintained in the last two-and-a-half months and is a “well-expected” range in the near term, said a large foreign exchange dealer. private sector bank.
“Two things were responsible for the rally in hedging. One was the perceived rise in the political risk premium and the other, more importantly, was the range marking of the rupee itself,” the seller said.
The rise in the rupee on Monday was an opportunity for importers and the subsequent fall for exporters, he said.
The currency has remained in a tight range, helped by regular intervention from the Reserve Bank of India.
The central bank has repeatedly sold dollars near 83.50 to prevent it from breaking the record low of 83.5750, reached in April. On the other hand, the Reserve Bank of India is expected to take advantage of any major rally in the rupee to accumulate foreign exchange reserves.
“When you have a currency that has, for a long time, maintained established ranges, it makes sense for companies to take advantage of moves towards the top or bottom of those ranges,” said Kunal Kurani, associate vice president at Mecklai Financial.
