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29 March 2024

Dirham flirts with Rs14; Remittances surge

Published
By Vicky Kapur

The Indian rupee came tantalisingly close to slumping through the Rs14 barrier against the UAE dirham on Friday as the Asian currency came under renewed selling pressure on inflation woes and European headwinds.

One dirham was fetching 13.99 units of the beleaguered rupee at 11am UAE time on November 18, slumping to fresh 32-month lows. The rupee was trading at 13.955 at 10am Sunday morning, and was down 2.4 per cent on the week, its biggest weekly slide in two months.

The strengthening dirham and a constantly weakening Indian rupee has recently seen up to 20 per cent spike in remittances from the UAE’s Indian expatriate community, a senior official of one of the largest money remittance agencies in the country told 'Emirates24|7'.

“In the initial stages of the current depreciation, we saw a sudden and major increase in remittance volumes,” Y Sudhir Kumar Shetty, COO – Global Operations, UAE Exchange, said in emailed comments to this website. “Compared to the normal trend, volumes increased by more than 20 per cent,” he confirmed.

“There [is an] increase in volumes as and when there is a significant depreciation in the rates,” Shetty said, adding that the initial surge has subsided. Experts believe that many non-resident Indians (NRIs) may have already sent their savings home at a favourable exchange rate. “Now the upsurge has come down and the flow is somewhat normal, though uptick is there,” Shetty said.

“It’s not a normal feature on the volume rise as most of the remitters remit home on monthly basis irrespective of the rate movement,” Shetty added. The remittance surge, however, might return if the downward trend in the rupee persists and it tests its previous lows, especially as the Reserve Bank of India (RBI), the country’s central bank, is sticking to its guns and said it won’t intervene to prop up the worst performing major Asian currency this year.

“Let’s not lose sight of the fact that there is a global dynamic here. And to try and resist or try and do something for which we do not have a capacity, we may run out of capacity, in a situation global forces are pushing it along, is also a risky strategy,” RBI deputy governor Subir Gokarn said in a TV interview last week.

The rupee is now down 16.6 per cent in a little over three months – from 44.07 against the dollar (11.998 against the dirham) on August 2, the rupee slumped to 51.39 on Friday, a level it last saw in March 2009, and is in serious danger of breaching the low of 52 against the US dollar (Rs14.16 against the UAE dirham) that it registered in that month.

The strength of the dollar (and dollar-denominated currencies such as those in the GCC region) has resulted in huge money transfers to India, already the world’s largest recipient of remittances. According to the World Bank’s Migration and Remittances Factbook 2011, India is the largest recipient country of remittances, receiving $55 billion in remittances in 2010.

However, despite the rupee remaining weak and repeatedly making new multi-year lows, a section of experts believes that if the rupee breaches the 52-mark, it could go as low as 58 against the dollar (15.79 against the UAE dirham).

One such expert is Laurence Balanco, Asian Technical Analyst, Credit Lyonnais Securities Asia (CLSA), a brokerage and investment group. “The rupee at a minimum price will retest the Rs52 level [against the US dollar], which are the previous highs. A break above that will open a road for a move up to Rs58 area,” Balanco said in a televised interview with CNBC-TV18, an Indian business news channel.

“The emerging market currencies have been weakening, which is the general theme of dollar strength versus emerging market currencies. The technical set up for that is the dollar strength against emerging market currencies,” Balanco added.

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