The Reserve Bank of India’s latest export relief steps may
pressure the rupee, with several bankers noting that the added
flexibility could prompt exporters to delay bringing back
foreign earnings, weighing on near-term dollar supply.
The RBI on Friday announced a package of relief measures to help
exporters cope with the pressure from U.S. tariffs, including
extending the export realisation window to 15 months from nine,
relaxing credit requirements and providing higher repayment
flexibility.
The step comes at a time when India’s trade outlook is
clouded by stalled negotiations on a U.S.-India agreement that
could roll back the 50% duties imposed on several Indian
products.
Those levies, in place since late August, pushed
merchandise exports to the United States, India’s largest
market, down nearly 12% year-on-year in September.
The longer payment realization window is likely to delay
the return of export dollars, bankers said. The notification
comes into effect immediately.
With no obligation to convert receipts within nine months,
exporters are now free to stagger flows or hold on to proceeds
for longer, especially given the rupee’s weakening bias,
reducing immediate dollar supply, they added.
“Exporters, already cautious about taking forward hedges,
now have additional leeway to push back their conversions,” a
senior treasury official at a private sector bank said, who did
not want to be identified since he is not authorised to speak to
the media.
This, he said, chips away at near-term FX supply and can
leave the rupee more vulnerable at the margin.
The rupee, among the worst-performing Asian currencies this
year with a 3.5% decline, was trading at 88.62 to the U.S.
dollar, near its late-September record low of 88.80.
While the measures provide modest operational relief to
exporters, the longer repatriation window could prompt firms to
delay conversions, said Dhiraj Nim, economist and FX strategist
at ANZ Bank.
“Its something that the RBI can manage using other tools.”
Other economists noted that the measures are more about
cushioning sentiment.
Gaura Sen Gupta, economist at IDFC FIRST Bank, said the
trade relief measures were aimed to ensure that flow of funds to
the exports sector is maintained in the face of tariff
pressures.