Indian rupee crashes to 2-year low; should you remit now?

The Indian rupee crashed to a 23-month low yesterday on news that the Chinese yuan had been devalued for a second time in as many days.

China yesterday allowed the yuan to fall sharply for a second straight day, sparking fears of a currency war among the various emerging and developed markets currencies.

The Indian rupee started this week at Rs17.35 against the UAE dirham, a level that it more or less maintained until August 11. However, the rupee weakened to as much as Rs17.68 vs Dh1 intra-day, falling to the lowest since September 9, 2013.

“It is indeed a rub-off of the yuan devaluation,” Sudhesh Giriyan, COO, Xpress Money, confirmed to this website.

“With the kind of volatility we’re seeing in the rupee at the moment, we have seen predictions of it falling to 65.20/$ [Rs17.75 vs Dh1] within a few days,” Giriyan said.

Yesterday’s session saw the Indian rupee plunge by almost 2 per cent intra-day, prompting market players to speculate that the Reserve Bank of India is set to intervene to prop up the plunging currency.

Emirates 24|7 spotted an unusual rush of Indian expats at remittance counters at this time of the month, enquiring about the exchange rates and remitting their savings at the best rate they’ve received in almost two years.

“There is usually a rush of remittances whenever the rupee falls, and that has been the case now as well,” Ashwin Shetty, Sr. Vice-President – Treasury, UAE Exchange, told this website.

Asked how much have the remittances gone up by over the past two days, Shetty hinted that the amount of money being remitted to India could have doubled over the previous week.

“It is the high net worth individuals who usually remit when the rupee falls, and while the number of transactions may not go up as much, the volume goes up by 50, 60 or even 100 per cent,” Shetty told Emirates 24|7.

The rupee traded at Rs15.87 on May 22 last year and has, in the subsequent 15 months, lost 11.4 per cent of its value.

The two-year lag may be another reason why remittances are swelling now, with well-heeled Indian expats getting the best exchange rates in several months.

Nevertheless, according to analysts, the rupee could fall further in the coming days, especially if there are any signs of an additional devaluation in the yuan, and Rs18 vs Dh1 is likely this month.

“The rupee could slide more, given the global scenario,” says Shetty, who maintains that the Indian currency may not go back below Rs64-level versus the US dollar (Rs17.42 vs Dh1).

“The rupee is at a decent level right now, but for big-ticket customers who can wait, a few more days may result in a slightly better exchange rate than now,” added Giriyan.

In fact, UAE Exchange’s Shetty’s forecast for the rupee is even weaker over the next few months. “Depending on a number of global factors, the rupee could go down to Rs66-67 against the US dollar [Rs17.97-Rs18.25 against the UAE dirham],” Shetty said.

Xpress Money’s Giriyan, however, believes that the rupee may remain in a band between 64 and 65 to the dollar in the next few months (between 17.42 and 17.69 against the UAE dirham).

“There aren’t any drivers currently that can push the rupee down to August/September 2013 levels,” Giriyan said. The rupee made its lifetime low of Rs18.55 against the UAE dirham (Rs68.15/$) on September 3, 2013.

The dollar strengthened yesterday against a basket of global currencies, but fears are mounting that, as a result of the Chinese yuan devaluation, the Fed may just decide to push back the September due-date for its interest hike.

Several currency experts believe that the recent devaluation of the Chinese yuan (the first of which was termed as one-off by the People's Bank of China) may just be the beginning of a longer term slide in that market’s currencies, and will lead to other countries follow the lead in the proverbial ‘race to the bottom’.

The weaker a country’s currency, the more attractive are its exports for others, who will have to spend less of their own currencies to import products priced in the weaker currency.

The Chinese yuan has been devalued by more than 4 per cent over two days.

(Image via Shutterstock)

Follow Emirates 24|7 on Google News.