5.44 PM Friday, 29 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 04:56 06:10 12:26 15:53 18:37 19:52
29 March 2024

NRI bonus: Rupee falls 20%

Published
By Vicky Kapur, with inputs from Reuters
The Indian rupee is down more than 20 per cent this year, providing UAE expatriates from the Asian country welcome bonus while remitting money home.
The Indian rupee slumped another 5 paisa against the UAE dirham to a record low of Rs14.62 per AED in early trade on Wednesday, a day after breaching the Rs14.50 per dirham-mark, on increased demand for the American currency from banks and importers and sustained foreign capital outflows amid an economic slowdown.

The rupee, which traded at Rs12.169 against Dh1 on January 1, 2011, is inching towards the Rs15-mark versus the dirham.

Yesterday, the rupee fell to Rs53.51 versus $1, and Rs14.57 against Dh1 as the Asian currency came under renewed selling pressure on signs of a sharp slowdown in Asia’s third-largest economy.

The fresh lows came despite India’s apex bank – the Reserve Bank of India (RBI) – acknowledging in a bulletin that it had intervened in the foreign exchange market in October, for a second consecutive month, after the rupee came under tremendous pressure on deepening domestic and global growth concerns.

"There is only one direction for the rupee now and it is not coming back soon because there is demand but no supply," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank. "This situation will persist until the global debt issues are resolved."

Click here to learn how you can make a killing through an ailing rupee

The rupee slipped through its yesterday's low of 52.84 versus the dollar and 14.38 against the UAE dirham. Today’s selloff is a direct result of very weak numbers announced yesterday by the Indian government, with domestic factory output contracting for the first time in more than two years amid globally waning risk appetite.

India is vulnerable to portfolio outflows from the stock market after data on Monday showed October industrial output slumped 5.1 per cent, the first drop in more than two years.

On Friday, India slashed its full-year growth forecast amid slowing domestic and global demand and officials warned the government was facing a serious balance of trade problem.

This prompted investors to dump the beleaguered rupee in favour of the safety of the US dollar, as well as resulted in local stocks losing further ground, with the Bombay Stock Exchange Sensitivity Index (Sensex) yesterday losing over 343 points, or 2.12 per cent, and closing the week’s first trading session at 15,870 points.

With the rupee plunging to fresh lifetime lows, remittances from the UAE and across the world are expected to surge as NRIs take advantage of a favourable conversion rate.

Click here to read how UAE Indians are making their home country more prosperous

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.

Traders said they were watching the RBI for any intervention to halt the slide. "If the RBI does not intervene the unit can slide to Rs55 against the dollar [Rs15 against one dirham]," Raina said.

Analysts have said India may face its worst financial crisis in decades if it fails to stem the rupee's slide, leaving the central bank with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.

The RBI sold $845 million in September for the first time in 10 months, and a further $943 million in October, according to the latest central bank data.

Mohan Shenoy, treasurer at Kotak Mahindra Bank, said the rupee would become fairly valued at 53.75/54.00, which was the real effective exchange rate.

"It could see some support at that level," he said.

The rupee is now down more than 21 per cent in a little over four months – from 44.07 against the dollar (11.998 against the dirham) on August 2, the rupee slumped to 53.40 today, its all-time low levels, beyond its previous lows of Rs52.22 against the US dollar made on November 22, 2011.

Click here to track the rupee's decline

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 now that the rupee has broken 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.

ALSO READ:

Dash for cash sees
gold price plunge



Emirati Debt: Dh48 billion
accumulated over the last 6 years