Policymakers must announce dramatic measures if they wish to turn around the sentiments in the foreign exchange market, says Jamal Mecklai, chief executive of Mecklai Financial. Measures to boost long-term flows would hardly affect market mood, let alone bring in dollars on an immediate basis. In an interview with Aparna Iyer, Mecklai says exporters must take out-of-the-money options to hedge right now as he feels the rupee?s downside may not be limited to just 57 per dollar level. Excerpts

Why the recent measures from the government and RBI had no impact on the market? Were they too little too late?

What they did on Monday had no impact. I mean, in my view, it was meaningless if their aim was to turn around the sentiments. If the job was to change market mood, you have to bring big things on the table. If you want to change the sentiment, you need to do something dramatic.

So is there more downside to the rupee?

If you open the doors to foreign investment, its not going to happen tommorow. Right now, the global market is in such a bad shape, people are terrified, they don?t know what to do. I used to think 57 per dollar was the floor, but now I am not so sure.

What is the fair level of rupee? Is there too much negativity?

The fair value of the rupee is about 51 per dollar. The extra five rupee fall is mainly because of the negative sentiment in the market.

What advice are you giving your exporter clients as all those who have hedged earlier have been caught on the wrong side by this rupee depreciation?

I tell them to take out-of-the-money options. See, the 51-52 reasonable level would hold. Any sudden change overseas could bring longs into the market and have a snowballing effect.

Are options popular hedging instruments with corporates?

They are not popular enough, they should be used more. It is not being used as much as it should be. Most don?t use options at all. I believe companies should have at least 10-15% of hedge through options.

Some argue that if flows start coming in, the RBI should not let the rupee appreciate dramatically, volatility must be curbed…

If the government gets its act together or if something great happens and the European problems are solved, the flows will come and the rupee is going to appreciate and it should be let to appreciate. But both these things look highly unlikely to me right now.