MUMBAI (Reuters) – Indian importers should hedge their near-term foreign currency payments on hopes that the dollar will strengthen next quarter on further interest rate hikes by the U.S. Federal Reserve. said several analysts.
The dollar is expected to appreciate against most Asian currencies in the July-September quarter, and a rate hike by the Fed at its July meeting is almost certain, increasing the likelihood of further rate hikes after that.
Analysts at BofA Global Research wrote in a mid-year review note that “most Asian currencies will underperform against the U.S. dollar in the third quarter of 2023 due to further Fed rate hikes and continued strength in the U.S. economy.” said. They expect the Fed to raise rates by 25 basis points in July and November.
“The rupee remains the most attractive emerging market currency on a carry-to-volatility basis, but further Fed tightening could put carry positions at risk.”
Fed Chairman Jerome Powell this week Said Two more rate hikes are likely, including back-to-back rate hikes.
BofA expects USD/INR to rise to 83 in Q3 from the current 82.0250. The rupee gained about 0.8% against the dollar in the April-June quarter.
U.S. gross domestic product (GDP), durable goods, unemployment claims and new home sales figures released this week beat expectations, and the world’s largest economy is well on its way to aggressive interest rate hikes to curb inflation. showed patience.
Near-maturity U.S. yields surged this week, pushing the dollar index closer to 103.50.
“The risk balance is definitely heading towards a stronger dollar,” said a foreign exchange sales executive at a foreign bank, who asked not to be identified because he was not authorized to speak to the media.
“Combining this with the Reserve Bank of India initiative and the level of futures premiums, it makes sense for importers to hedge a little more than policy mandates.”
Central banks have taken advantage of the rupee’s rally to buy dollars to rebuild foreign exchange reserves and keep the rupee under control.
Lower dollar/rupee premiums, lower hedging costs for importers, thanks to narrower US-Indian interest rate differentials.
The 3-month annual futures premium is 1.3%. This means that the importer can fix the rate of his three-month dollar payment at about 82.30.
Kunal Kurani, associate vice president of currency risk advisory firm Meklai Financial, said: “The spot price is $82 and the premium is favorable[for importers]so we recommend importer clients to hedge up to three months. There are,” he said.
“Most importers listen to us.”
Reported by Nimesh Vora.Editing: Swati Bhat and Nivedita Bhattacharjee
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