Indian importers hedge less, assured by cenbank's rupee support, data suggests

An employee counts Indian currency notes inside a private money exchange office in New Delhi

By Nimesh Vora

MUMBAI (Reuters) - Indian importers are taking less insurance against foreign exchange fluctuations, data indicates, on expectations that the central bank will continue to intervene to keep the rupee above the key psychological level of 83 per U.S. dollar.

Dollar purchases by importers for delivery beyond the spot date dropped in February, according to Reuters calculations based on data by the Clearing Corporation of India.

Importers bought about $1.24 billion daily, on average, in the forward markets this month, down from $1.50 billion in January and from $1.54 billion in the October-December quarter.

Average daily forward $ purchases by importers

"With the RBI active, importers are eyeing the 83 level and waiting. Instead of forwards, they are looking at options," said Abhishek Goenka, chief executive of IFA Global, which manages or advises on over $20 billion worth of Indian companies' forex exposure.

Large importers are looking at the USD/INR call spread option structures, Goenka said. Call spreads protect importers up to a certain price, but cost less than an outright call option.

The Reserve Bank of India has likely been stepping in regularly to make sure that the rupee does not fall below 83, a level that is considered critical by market participants. The rupee declined to 82.95 on Monday, before recovering, and held a narrow 25-paisa range last week.

The RBI's intervention has helped the rupee sidestep a large part of the selloff in Asian currencies fuelled by the higher repricing of the U.S. Federal Reserve's terminal rate.

"Not once has it (USD/INR) closed above 82.90, forget 83, in this period in which the Fed has become a bigger unknown," a forex sales official at a mid-sized private sector bank said.

"The RBI is obviously the biggest piece, but we think India's changing external risk profile is playing a part too."

India's trade deficit narrowed to a 12-month low in January, while its service surplus unexpectedly reached a record high.

The country's imports of $50.6 billion in January was less than December's $58.2 billion, November's $56.7 billion and October's $58.2 billion.

This has prompted economists to lower the current account deficit projections for the current and next fiscal years.

The sales official noted that March is a seasonally favourable month for the rupee, giving importers another reason to reduce hedges to the extent their risk management policy allows.

Still, Bhaskar Panda, head of overseas treasury at HDFC Bank, said importers should not rely too much on the rupee's current narrow range.

"To think that the rupee will be contained at 83 and to base hedging decisions on that is not advisable," Panda said.

"There is just too much uncertainty right now for importers to take more risks. They should follow a consistent hedging policy and not base decisions on a particular level holding up."

(Reporting by Nimesh Vora; Editing by Savio D'Souza)