The new year has begun well for the UAE’s Indian expats, with the rupee tumbling against the US dollar – and the dollar-linked UAE dirham – to a six-week low on Monday, extending losses for a third straight session.
The Indian rupee slipped to Rs15.05 against the UAE dirham at 3pm before closing the session marginally stronger at Rs15.03 vs. Dh1, its weakest close in six weeks. The rupee was trading at Rs15.07 against the UAE dirham at 9am UAE time on Tuesday, and showing signs of further weakness.
The rupee last closed below this level on November 29, when it ended at Rs15.16 against the UAE dirham.
With the latest decline happening in the first week of the month, a number of remittance houses in the UAE were seeing doing brisk business as Indian expats got a favourable exchange rate (~Rs14.95 vs. Dh1) at the exchange counters.
The latest round of forex movements come more as a result of weaker rupee rather than a stronger dollar. The UAE dirham (US dollar) remained muted against other major expat currencies, including the Philippines peso, Pakistan rupee and Bangladesh taka.
Indian economy is seen at a crossroads, with ballooning fiscal and budget deficits taking their toll on the country’s currency, which has shed more than a quarter of its value in the past 18 months.
Analysts believe that, were it not for the global woes putting a drag on major world currencies, the rupee would have dropped even further.
Additionally, a resource hungry economy needs the country’s oil importers to continually source dollars to purchase oil on the global market, which has often in the recent past led to downward pressure on the local currency.
Sustained dollar demand from oil importers as well as banks amid firm dollar overseas weighed on the rupee.
Authorities in India have been struggling to contain the government’s current account deficit, which has been estimated at 5.4 per cent of gross domestic product according to latest figures published on December 31, 2012.
Earlier estimates had put the deficit at almost a percentage point lower. This high level of deficit is not only unsustainable, it also infects the rupee with a large dose of vulnerability.
Any further deterioration in the deficit levels would imply a devaluation of the rupee, which will ensure that Indian exports to remain competitive but imports will get further expensive as the vicious cycle takes its turns.
India’s penchant for gold and oil means that reining in the deficit is a tough ask for the government, which has been issuing veiled threats of late to it citizens in order for them to go on a crash diet of gold.
Until the country devises means to actually do that, Indian expats in the UAE – and elsewhere in the world – can continue enjoying a favourable remittance rate.