The rupee touched a 7-year high

The rupee touched a 7-year high of 43.01 against the dollar, as the Reserve Bank of India chose to stay on the sidelines of the forex market on Thursday.

Exporters, however, bet on a dollar rebound, stashing their export proceeds in foreign currency accounts while importers bought the dollar at lower levels to cover their positions.

The local currency has appreciated by more than 9% over the past 8 months, closing at 43.04/05 levels against the dollar on Wednesday, compared to the 3-year low of 47, in July 2006. The rupee on Monday had ended at 43.29/30 levels. The rupee was propped up by high interest rates caused by tightness in money markets.

Call rates the day in a range of 7-9%, after rising to 30% during the day. The central bank infused a total of Rs 27,395 crore through the repo operations under the two sessions of liquidity adjustment. On the other hand, it mopped up bids worth Rs 3215 crore through reverse repo operations.

Once the local currency breaches the 43-mark against the dollar, then it’s quite possible to foresee a level of 42.50 in the next few days, contend senior treasury officials. A report by Barclays Capital has talked about the possibility of rupee finding support in the 41-40.8 range.

However, exporters have already started postponing their receivables. On exposures, which are extremely short-term in nature, exporters are choosing to park funds in the exchange earners foreign currency (EEFC) accounts. They plan to convert these funds into rupees once current liquidity conditions ease and the local currency moves back to more secular levels over the next couple of weeks.

“Liquidity conditions are expected to ease in the first week of April as most money market participants view the current rise more as a function of the tightness in liquidity than any currency market-related issue,” said a senior treasury official.

The onset of April will see government borrowing picking up, alongside payments of salaries. Among the exporter clan, the smaller rung of players is expected to be the worst-hit, as they do not seek much recourse to hedging instruments. TCS, for instance, has currently hedged up to $580 million, which accounts for about 70% of its net foreign currency exposure.