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29 March 2024

Indian rupee hits 2015 low: UAE expats remit now or wait?

Most December-end forecasts for the rupee are around Rs65 against $1, which works out to Rs17.70 vs Dh1. (AFP)

Published
By Vicky Kapur

The value of the Indian rupee has declined sharply this month against the US dollar (and therefore the UAE dirham), down from Rs16.85 for Dh1 on Friday, April 3, to Rs17.36 for Dh1 on Friday, April 24, 2015. That’s a decline of more than 3 per cent in three weeks.

In fact, the rupee traded at its strongest this year on January 28, when Dh1 fetched Rs16.68. Since then, the rupee has depreciated by 4 per cent, and there are contradictory forecasts on whether or not the rupee is set to witness major declines going forward.

Most December-end forecasts for the rupee are around Rs65 against $1, which works out to Rs17.70 vs Dh1. This would suggest that the rupee will depreciate by another 2 per cent in the next 8 months, which is quite stable given the recent volatility.
 



Sudhesh Giriyan, COO, Xpress Money


“We haven’t seen any major moves of late even though reports claim it may go down to Rs75 or even Rs80 against $1 [Rs20.42 or Rs21.78 vs Dh1],” Sudhesh Giriyan, COO, Xpress Money, told Emirates 24|7 earlier this month.

“If you look at the trend of the past year or two, the rupee is stabilising,” he said.

The rupee has indeed stabilised since hitting a lifetime low in September 2013. “In 2013, the rupee saw its lifetime low of Rs18.55 vs Dh1 [Rs 68.15 vs $1] on September 3, a day before Raghuram Rajan took over as the Governor of the Reserve Bank of India on September 4,” says Giriyan.

“During that period, the rupee had been continuously sliding for several months, with the decline peaking in the first week of September. That rally encouraged many Indians in the UAE to borrow money and take out loans from the banks to capitalise on the favourable rate,” he adds.

“The overall remittances in 2013 received a huge boost in the third and fourth quarter of that year. Even last year, the rupee was at a favourable exchange rate, and remittances to India remained at the same levels,” Giriyan says.

According to a latest World Bank brief, India remains the world’s largest recipient of remittances, receiving $70.38 billion from its global workforce in 2014, up marginally from $69.97bn in 2013.

“We don’t see remittances growing substantially from this level [$70bn] in the near future,” says Giriyan, “unless the rupee starts collapsing again.”

He notes that some of the UAE Indians who had borrowed money in 2013 to remit record sums home owing to the favourable exchange rates are still repaying those loans, so will be unable to capitalise on the current volatility.

“So that may also keep a lid on remittances this year,” he says.

As this website reported last week, worries over retrospective taxation for foreign institutional investors (FIIs) as well as month-end dollar payments for oil imports are being largely cited by analysts as reasons for the recent declines in the Indian stock and currency markets.

Read:
Tax shocker rattles India: Rupee crashes, equities plunge; what's next?

India plans to raise about $6.5 billion (Dh24bn) by taxing foreign firms for capital gains they made in previous years.

The country’s Income Tax department has slapped tax notices on FIIs and foreign portfolio investor (FPIs) of Rs40,000 crore towards minimum alternate tax (MAT) after they lost an appeal at the Authority for Advance Rulings against levy of 20 per cent MAT on capital gains they made in years through March 31, 2015.

While that took its toll on the rupee as well as share prices, the RBI is expected to intervene in forex markets to reduce volatility when markets reopen on Monday.

Even as Xpress Money’s Giriyan sees limited volatility going forward, there are reports suggesting the currency could fall as low as Rs68 to $1 over the next 6-7 months.

“We are vulnerable right now to external and internal shocks. Essentially, if we see another round of dollar strength, it is possible it may go to Rs68 vs $1 [Rs18.51 vs Dh1], but I think this is unlikely, and rupee would settle around Rs65 vs $1 [Rs17.7 vs Dh1] over a period of time,” Ananth Narayan G, regional head of financial markets for South Asia at Standard Chartered Bank, was quoted by Financial Express.

However, as Giriyan puts it, “the years of glory of remittances growing by double-digits are past… There is a question-mark on substantial future growth in overall numbers.”