Indian rupee premiums are likely to keep declining due to the surge in US yields unless the Reserve Bank of India intervenes and conducts sell/buy swaps, say three bankers. The yield on the dollar/rupee 1-year forward premium fell to 1.73% on Tuesday, hit by the recent U.S. rates surge; last year it reached a low of 1.60%. Depressed premiums discourage exporters from hedging their future foreign exchange receipts, thus bringing down the supply of dollars, while encouraging importers to hedge, leading to higher demand. This in turn makes the RBI’s management of the rupee exchange rate more challenging. The central bank can push premiums higher by conducting USD/INR sell/buy swaps.
Bankers closely monitoring central bank’s response as Indian rupee premiums decline
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