In a warning to India Inc, the Reserve Bank of India on Tuesday said the corporates’ unhedged foreign currency exposure is significantly higher than what ought to be and they cannot be overly complacent about it.
“We are monitoring (the unhedged foreign currency exposure) but the data on this is not as good as what one might think.
“Our sense is that this exposure is significantly higher than what ought to be. And people are getting a little too comfortable with the stability of the rupee,” said RBI Governor Raghuram Rajan in a post-policy interaction.
He said people should note that even though the rupee seems like it has been depreciating but that is primarily against the dollar. But if one looks at other countries and takes a six-country average or a 36-country average, which the RBI does, the rupee has actually been appreciating.
“Given that I don’t think they (India Inc) should be overly comfortable and leave positions unhedged. Volatility does emerge at times which are unexpected.
“While we are not targeting a level of the exchange rate, we try to monitor undue volatility. This does not mean no volatility and does not mean that the exchange rate will not adjust to fundamental changes,” said Rajan.
Rajan said people should not be overly complacent about leaving foreign currency exposures unhedged as time and again it does come back to hit companies.