Exporters jettison forward $ deals

With the Indian rupee expected to gain significantly in coming days, big and small exporters alike are being cautious and fervently selling forward contracts for dollars receivables.

Selling a forward contract protects an exporter from the erosion of value of future payments when his domestic currency appreciates.

As a result of the heavy selling of forward contracts the premia on the six months forward has dropped by as much as 108 basis points since Saturday at the rate of 25-50 basis points a day. (One basis point is one hundredth of a per cent.) The six months forward today closed at 1.22 per cent down from 2.30 per cent on Saturday.

The 12 months premium today ended at 1.13 per cent down from Wednesday's level of 1.41 per cent.

"Exporters are selling heavily since the rupee is expected to gain. On a conservative basis the rupee could be at 44.50 in six months time," said P Mukherjee, senior vice president, treasury, UTI Bank.

The dollar has been losing ground against all Asian currencies and hit a record low against the Euro on Wednesday. There is more room for the dollar to lose, say market players.

The Indian rupee which had been on an appreciating for over a year now had hit a rough spot earlier this year for about two months leaving market watchers and analysts ambivalent on where the currency was headed. In January the rupee had been at 43.50 from there it dipped to as low as 47.00 in its value against the dollar in March.

At that level there was plenty of uncertainty in the market. But over the last one month the currency has steadily gained from 45.90 levels to today's levels of 45.06.

The gain of the currency would have been much stronger had it not been for Reserve Bank of India's (RBI) recent bout of active intervention. Over the past three days RBI would have bought as much as $ 1 billion to stall the Indian rupee from gaining further ground.

If the RBI had not intervened so aggressively over the domestic currency would have certainly touched 44.50, said the chief dealer at a foreign bank.