The Hindu Business Line : Exporters revert to dollar invoices as euro weakens

With US interest rates hardening and international oil prices remaining firm, the dollar is expected to continue to advance against other major currencies and the rupee. As a result, bankers have advised some exporter-customers to shift their outstanding invoices to dollars.

Bangalore , Nov 8

EXPORTERS, including diamond traders, to European destinations are reverting to invoicing in US dollars in the face of the euro's sharp depreciation.

In 2003, diamond traders were the first to invoice export receipts in euros to maximise earnings from exchange rate fluctuations. They were followed by other commodity exporters, including software majors.

However, the reversal in invoicing was driven by the dollar's 5 per cent appreciation against the rupee since April this year. The euro, on the other hand, has depreciated about 4.5 per cent against the rupee during the same period.

Bankers said that going by the seasonal pattern over the last three years, the rupee tended to appreciate during the first half of the year and depreciate in the second half.

But this year, bankers said, with US interest rates hardening and international oil prices remaining firm, there were expectations that the greenback would continue to advance against all other international currencies and the rupee. As a result, bankers said, they had advised some exporter customers to shift their outstanding invoices to dollars, to cut losses for the rest of the year.

The advice was based on the likelihood of a further increase in US interest rates after 12 hikes. Bankers said that if the upsurge in US interest rates continued, the rupee was likely to depreciate even further against the dollar. Last week, the Federal Discount rate was hiked to 5 per cent, the highest since 2001. The Federal discount rate or the Fed rate is the interest at which banking institutions borrow short-term resources from the Federal Reserve Bank. The hikes, bankers said, had led to large-scale exodus by foreign institutional investors.

Anticipation of a further appreciation of the dollar had already resulted in many exporters cancelling and rebooking some forward contracts. Some were prepared to leave their positions un-hedged for fear that a reversal would leave them with losses. As a result, despite the rupee dropping sharply in the spot markets, the forward premia remained below one per cent.

Besides, some importers and corporates are also taking forward cover, taking advantage of the current low. Till last year, many oil importers and corporates preferred to leave their positions unhedged, to benefit from the rupee's appreciation. A strong rupee reduces import costs and repayment obligations on foreign debt. Importers' rush for forward cover was also triggered by the restrained RBI interventions in the foreign exchange markets during the last few weeks. Bankers said that the restrained interventions also allowed for the removal of excess liquidity, which had built up due to large-scale inflows during the last few years.

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