Indian rupee sinks to fresh all-time lows: Rs16.03 vs. Dh1 now

The Indian rupee made a fresh all-time record low of Rs16.033 against Dh1 (Rs58.89 vs. $1) at 9.30am on Wednesday, June 19, 2013, sinking through yesterday's lifetime low of Rs16.026 vs. Dh1, and was trading at Rs15.99 against the UAE dirham at 5pm UAE time.

But now with the rupee falling even further, to Rs16 against the dirham, he is ruing his decision. “Technically, I think I have lost some potential gains in this forex game,” he shrugs. “While I’ve received 9.75 per cent interest on the sum I remitted, the rupee has further slumped by close to 7 per cent,” he says. “And I am paying an interest of about 4 per cent on the money I borrowed last year, which means I lost about 2 per cent,” says Sankar.

He isn’t alone. A number of Indian expatriates in the UAE and across the region, as well as in other dollar-denominated economies, borrowed money at lower interest rates to enjoy the high interest rates being offered by Indian banks when the rupee began its slide in August 2011.

World Bank data shows that India was the world’s largest recipient of remittances in 2012, with overseas Indians pumping the country’s coffers with $69 billion worth of foreign exchange. In addition, this year is expected to be another record in remittance for India, with the World Bank estimating that non-resident Indians (NRIs) will remit more than $75 billion this year.

Banks in the country are currently flush with liquidity owing to a recovery in the local markets, and are once again in the process of growing their loan-books after a couple of years of contraction that began in 2009.

Expat Indians in the country who sent money earlier when the rupee declined are being reportedly contacted again by their banks, asking of they’d like to ‘top-up’ their existing loans now that the rupee has declined even further.

“I’m not going to borrow this time,” says an adamant Sankar, who says he’ll rather wait to see how low the rupee goes before taking any decision. But there are others that are giving the loan option a serious consideration. “I have a mortgage back home, and will be able to save quite a bit in interest outgo if I borrow now and prepay it,” says Suman Sikka, a Dubai-based auto dealer.

There are indeed a number of ways that Indian expats can benefit from the record low in the rupee. Read: Indian rupee slumps to Rs16: Five ways NRIs can make a killing

A substantial portion of India’s foreign remittance receipts originate in the Gulf. “In addition to large numbers of unskilled migrants working mainly in the GCC, India also has a large skilled diaspora sending money home, and their prospects in major sending countries (like the US, where the H1B visa quota was rapidly filled this year) are improving,” the World Bank’s latest Migration Development Brief highlighted in April this year.

Going forward, remittances by overseas Indians are expected to surge to $85 billion by 2015, World Bank reckons.

Before June 11, 2013, the Rs16-level against the dirham had never ever been breached, but with the current bout of dollar strength coupled with fundamental weakness in the Indian economy, not many experts believe that this is the weakest the rupee can go.

The rupee has been on a downward spiral since last October, when it traded at around Rs14 against the UAE dirham on October 5, 2012. Since then, the beleaguered Asian currency has lost more than 14 per cent of its value in less than 9 months.

The value of the rupee has been steadily chipped away on concerns over the country’s ballooning current account deficit.

India’s trade deficit widened to a seven-month high of $20.14 billion in May due to sluggish exports and higher imports, notably of gold and silver, according to data released by the Indian Commerce Ministry today (June 18, 2013).

In addition, market movers are taking a cautious approach ahead of tomorrow’s key US Federal Reserve (Fed) meeting, where many market observers believe Fed chairman Ben Bernanke may hint at a scaling back of the $85bn per month quantitative easing program, which has been a good source of investment flows into emerging markets, including India.

Any scaling back of that massive asset purchase programme will mean that the flow of foreign funds into emerging markets as well as commodities (read: precious metals) will slow down, resulting in a decline in asset prices in emerging markets and cheaper gold and silver prices.

(Home page image courtesy Shutterstock)

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