The Hindu Business Line : Fed rate cut may spell more trouble for exporters

Impact
The 75 basis points cut in Fed rate could lead to massive job losses.
Strong rupee is already being held responsible for rendering over 1.5 lakh unemployed in textile sector

Anil Sasi

New Delhi, Jan. 23

The US Fed rate cut may have come as a shot-in-the-arm for stock market investors in India and elsewhere, but for the country’s beleaguered exporting community, the move could spell further trouble.

A 75 basis points cut in interest rates by the US Federal Reserves, which spurred a rebound in most bourses across the world, is being seen as a precursor to a further weakening of the greenback.

This could further dent the competitiveness of exporters, especially textile and garment players, according to industry players.

The last time the Fed cut interest rates on October 31, the US dollar went on to hit a new all-time low against most major currencies.

A Fed interest rate cut typically bodes badly for the dollar since it makes US dollar-denominated investments worth less, and thereby less attractive to outside investors.

Dollar may weaken

Tuesday’s rate cut by a whopping 0.75 per cent — the first unannounced Fed cut since 2001 and largest single-day reduction since 1984 — led to a drubbing of the dollar in the currency markets during early trade.

However, going forward, a further weakening in the dollar is widely being predicted by analysts. The rupee quoted at Rs 39.55 to the dollar on Wednesday against the Reserve Bank of India’s reference rate of Rs 39.73 for the dollar on Tuesday.

Growing unemployment

An official with the apex textile industry body Confederation of Indian Textile Industry, said, “With the 75 basis points cut in the Fed rate, the dollar is likely to depreciate further against the rupee and this will only deepen the crisis in the textile and clothing sector. Already, there are reports of massive job losses and the situation is only going to get worse.”

The strengthening rupee, which appreciated nearly 12 per cent against the dollar in the last one year, is being widely held responsible for rendering over 1.5 lakh unemployed in the textile sector over the last one year, according to industry estimates.

Among textile players, the knitting industry that exports considerably to the US could be facing a stiff task ahead.

“Tirupur, the knitwear hub of the country, has already laid-off nearly 16,000 people over the last one year and another 15,000 could be out of their jobs, if the trend continues. The situation could actually be much worse if the rupee appreciates even further against the dollar,” a Tirupur-based exporter said.

Other export segments

Players in other export segments are also a worried lot. “The rising rupee has prompted most engineering sector exporters to go in for forward bookings of export shipments.

“But it remains to be seen how long this can proceed and a Fed rate cut at this time is certainly a big blow,” said an Engineering Export Promotion Council official.

More Stories on : Textiles | Interest Rates | Exports & Imports

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