The Indian rupee's plummeting volatility, mainly due to the central bank's stranglehold on the currency, is leading both importers and exporters to hedge less of their foreign exchange exposure.
This, in turn, means companies run the risk of being caught off-guard when volatility picks up, exacerbating swings in the currency.
"When a currency is less volatile, exporters and importers are less willing to hedge their exposure," said Arun Bansal, executive director at IDBI Bank. Importers will be reluctant to pay the forward premium to hedge when the rupee is trading in a narrow range, said Bansal. "The sideways movement in USD/INR has reduced the tendency to hedge," said Anshul Chandak, head of treasury at RBL Bank.
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