Is now the time to remit? Indian rupee slumps to Rs14.62 vs. Dh1

However, the exchange rate yo-yo is leading to NRI indecision on remittances

After strengthening a tad yesterday, the Indian rupee once again slumped on Tuesday, declining to Rs14.62 versus the UAE dirham at 12.40pm UAE time (9.40am GMT).

The blow-hot, blow-cold nature of the Indian rupee is constraining remittances as Indian expats remain indecisive about remitting large sums in non-critical investments.

The Indian rupee snapped its two-day losing streak yesterday, rising by about 10 paisa, or seven-tenths of one per cent, against the dollar-pegged UAE dirham to end the day at Rs14.56 against Dh1.

“I’ve borrowed money from a bank in Dubai to buy a house back home, and have been planning to remit about a quarter of a million dirhams for almost a month now, but can’t make up my mind on when to let go,”
quipped Charlene George, a non-resident Indian (NRI) living and working in Dubai.

With the exchange rate at the remittance counter yo-yoing widely between Rs13.90 and Rs14.60 in the past 30 days, her predicament is understandable.

Resuming a shade lower at 14.67 per dirham as against the last weekend’s level of 14.65 per dirham at the forex market on dollar-buying support from local Indian banks, the rupee switched gears around mid-day after foreign institutional investors pumped in about $45 million (Dh165 million) into the country’s stock markets, as well as on fresh selling of dollars from banks and exporters.

The rupee, which eventually recovered to close at Rs14.55, also got a boost as the US dollar declined against the euro on reports that a victory for Spanish Prime Minister Mariano Rajoy’s party in regional elections makes it easier for Spain to ask for a bailout.

Nevertheless, Charlene and numerous other NRIs can look forward to a stronger dirham in the coming weeks as rupee remains vulnerable to fundamental weakness in the country’s economic fabric, as well as a tarnished reforms record.

“External fundamentals remain unfavourable for the Indian currency,” Subhash Gangadharan, currency analyst at HDFC Securities, wrote in his weekly currency outlook published yesterday.

“With the positive sentiment generated by recent reform measures taken by the government weakening, fundamental concerns are coming back to affect the price action,” he maintains.

“The momentum of appreciation was always going to be difficult to maintain, considering that most of the measures relating to foreign direct investments (FDI) will attract capital over the medium term,”
notes Gangadharan.

The rupee hit an all-time low of Rs15.55 against the UAE dirham in June this year, after which the bureaucratic machinery in the Indian finance ministry announced a number of stalled economic reforms, which propped up waning investor confidence a little.

The rupee too got a shot in the arm, and rallied to a six-month high of Rs14.01 against the dirham earlier this month, but has since resumed a downward trend, leading to further expat indecision. “The government is expected to announce more measures to prop up the economy and help improve the investment climate,” believes Gangadharan, but adds that until that happens, the rupee’s fortunes will hinge on corporate earnings and global developments, especially those around the euro zone.

“The rupee may however remain weak especially if the global investor risk appetite remains weak. Second quarter corporate earnings would continue to draw interest of the market participants and any guidance of improvement going ahead, would be positive as that would signal that the economy might have bottomed out,” he reckons.

Eventually, the rupee’s fundamental weakness and its vulnerability to political inaction on the reforms front, coupled with an unstable global economic environment means that NRIs will have to keep guessing on when exactly to remit their hard-earned dirhams.

“The volatility in the rupee-dollar pair is likely to rise as positive sentiment generated since mid-September is clearly fading,” notes Gangadharan.

In conclusion, analysts do not expect the rupee to break out either way in a hurry – not at least until the Reserve Bank of India’s policy review on October 30, 2012. They see the rupee remaining range-bound, yo-yoing between Rs14 and Rs14.85 against the dirham.

(Home page image courtesy Shutterstock) 

MUST READ:

UAE set for salary hikes in 2013?

 Gold price sheds $75 in 2 weeks: Will we see $1,600-levels again?
 

 



 

Print
  • Twitter
  • submit to reddit
comments powered by Disqus

Videos

Most Popular in Markets

Follow
Emirates 24|7

Follow
Emirates 24|7
Pinterest Facebook Facebook Twitter RSS

Latest jobs available

More jobs on Emirates 24|7

In Case You Missed It ...