Despite the rupee strengthening 5-6 per cent over the past month, some companies have started hedging their imports in anticipation of the rupee depreciating to 43.75 levels over the next six months, to save themselves the cost of high currency volatility.

This outlook, also shared by forex dealers, stems from an expectation that inflation may moderate in the next few weeks, triggering possible Reserve Bank of India intervention to mop up dollars.

Dealers say the intervention will be primarily aimed at protecting exporters and attracting inflows to bridge the widening trade deficit, which stood at $57 billion in 2006-07, against $40 billion in 2005-06.

"It makes sense to keep a cover for at least a year as the rupee is volatile against the dollar. If the rupee stabilises after a year, we may keep an open book," said K R Yechuri, associate vice-president of infrastructure company GMR Group.

N S Paramsivam, head of forex and treasury of the Essar Group, with interests in steel, shipping and oil, said the company is covering its imports at attractive levels even as the rupee appreciates.

He predicts that the dollar will soon touch the Rs 42 level with the RBI's active intervention on account of the widening current account deficit, which can only be bridged by capital inflows in the form of foreign direct investment, external commercial borrowings and so on.

Another factor that might trigger rupee depreciation is the fact that the rupee has already appreciated 7-8 per cent in the past year, compared to a 2-3 per cent appreciation by all other Asian currencies. Therefore, it is better for importers to take a hedge for the short term. Exporters can also benefit from the rising forward premium on booking dollars.

Since the rupee is overvalued on a real effective exchange rate basis by 15 per cent, the RBI's intervention is likely at 40.50 if not 41, said a corporate treasurer. This is because it has increased the limit for issuance of bonds under the market stabilisation scheme from Rs 95,000 crore (Rs 950 billion) to Rs 1,10,000 crore (Rs 1100 billion). These bonds help the RBI absorb additional rupees infused into the system by its dollar-buying exercise.

Arun Chokani, finance director of Universal Cables, an M P Birla company, said, "My advice would be to lock on to the current cost as there is a lot of volatility in the foreign exchange market."

However, there are some opposing views as well. Y M Deosthalee, CFO, Larsen & Toubro, said, "Importing companies have benefited a lot from the rupee's strength." He added that the companies should leave their exposures uncovered as this trend is expected to continue.