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Indian exporters want a fixed currency exchange rate but Central Bank won’t oblige

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Indian exporters are overwhelmingly in favor of a fixed currency exchange rate as recent currency gyrations due to the Greek Contagion has made their lives very difficult.In a survey done by India’s Business association FICCI,88% of the respondents wanted the Indian Currency Rupee to be fixed as they were suffering from big losses due to appreciation.Euro’s 20% depreciation against the US Dollar has resulted in massive problems for exporters all over the world.India with 25% of its exports going to the European Union faces similar problems.The exporters want India’s Central Bank the RBI to changes its Currency Policy from free floating to fixed for exporters.Note China has a fixed dollar yuan currency peg at a much depreciated value.This has led to increasing international pressure on China to revalue the yuan as its swelling Forex Reserves and huge Trade Surplus leads to global imbalances.

RBI will not oblige

The Reserve Bank of India is not likely to oblige as its currency handling has been quite successful so far.RBI has intervened only to slow down rapid changes without interfering in the Rupee finding its market determined rate.RBI has a policy of not intervening to prevent either appreciation or depreciation resulting in the Rupee trading in a wide band of Rs 38-52 over the last Three years.Note Exports form a relatively smaller percentage of India’s GDP and so exporters have little influence over India’s currency exchange rate.Unlike countries like China and Japan which are heavily dependent on exports,India is not inconvenienced too much by Rupee appreciation.

Exporters seek fixed exchange rates – Economic Times

Caught off guard by recent appreciation of the rupee, particularly against the euro, the majority of the exporting firms surveyed by FICCI want the Reserve Bank to peg a fixed currency exchange rate. They took a cue from China, which has pegged a fixed rate of yuan against the US dollar. “At least for exporters, the central bank should give a facility like that in China of a fixed exchange rate. This would enable them to focus on managing their business and save them from the trouble of managing currency movements,” it said. An overwhelming 88 per cent of the 278 exporting firms participating in the survey, said the sudden appreciation in rupee has affected their margins. They lost on account of forward contracts that were booked to hedge currency risk.


Sneha Shah

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