Rupee tumbles to all-time low against the dirham

The Indian rupee fell to an all-time low of Rs52.22 versus a $1, and Rs14.22 against Dh1 on Monday at 4.15pm UAE time (12.15pm GMT) as the Asian currency came under renewed selling pressure on slower growth expectations going forward.

After flirting with the Rs14-mark for almost a week, the UAE dirham this morning surged past that magical number for non-resident Indians (NRIs) at 3.40 GMT (7.40am UAE time) on Monday, November 21, 2011. The rupee fell to Rs14.22 versus the dirham at 4.15pm UAE time (12.15pm GMT), slumping past the previous all-time low of Rs14.21 for Dh1.

The rupee last traded at these low levels – below 14 versus a dirham – only for a couple of weeks in March 2009, and then remained above that level for 32 months. Now, with the rupee once again plunging to such lows, remittances from the UAE and across the world are expected to surge as NRIs take advantage of a favourable conversion rate.

Asia’s worst performing major currency this year slumped for the fifth consecutive session this morning and made fresh all-time lows versus the UAE dirham (Rs52.22 versus the US dollar) as oil importers bought dollars and subdued shares heightened fears of foreign fund outflows.

Indian stocks tumbled again this morning after plunging the whole of last week, and the BSE Sensex closed down for the eighth consecutive session - down 425 points to 15,946 – its lowest showing in more than 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 more than 18.3 per cent in three-and-a-half months – from 44.07 against the dollar (11.998 against the dirham) on August 2, the rupee slumped to 52.22 on Monday, its all-time low levels, beyond its previous lows of Rs52.20 against the US dollar made in March 12, 2009.

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.

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