Rupee slumps against dirham

INR makes a 10-week low of Rs15.07 vs. Dh1

The beleaguered Indian rupee saw an early morning rout against the US dollar as investors continue to be spooked by the fast approaching US fiscal cliff.

The rupee once again fell below the Rs15-mark against the UAE dirham, trading at around Rs15.07 vs. Dh1 (Rs55.35 vs. $1) at 8.20am UAE time this morning.

This marks a 10-week low for the rupee, the lowest it has slumped since September 9, 2012, and with European leaders failing to agree on a debt pardon package for Greece, and US politicians failing so far to announce a resolution that kicks the austerity can down the road before January 2, 2013, chances are that the Indian rupee will continue to weaken by this year-end.

This is because, in the absence of any positive cues, global investors will continue to scurry towards the safe haven currency – US dollar – liquidating any major investments in emerging market currencies, including the Indian rupee, analysts believe.

EU finance ministers are scheduled to meet again on November 26 after yesterday’s talks failed to produce some sort of a debt pardon package for Greece, something that the markets were expecting. With the US markets soon shutting down for the Thanksgiving weekend, analysts however do not expect major currency movements over the coming few days.

The rupee has, so far, declined over 3 per cent against the UAE dirham (which is straight pegged to the US dollar), and the approaching US fiscal cliff, which refers to spending cuts and tax increases that would be triggered on January 2 if American lawmakers fail to agree on budget proposals, means that Indian expats should gear up for another round of remittances as the rupee could see lifetime lows in December.

The Indian rupee famously declined 17.5 per cent in four-and-a-half months, from Rs13.23 versus Dh1 on February 5, 2012, to Rs15.55 on June 23, 2012, much to the delight of Indian expats in the UAE and elsewhere.

The rupee hit a six-month high last month, when it traded at Rs14.09 against the UAE dirham on October 8. However, the currency has since declined 7 per cent in a little over six  weeks, and analysts believe it could weaken further.

The rupee has been on a downward spiral for quite some time now, briefly appreciating in September and early October after the Indian government announced some key economic reforms, but the continuing global economic uncertainty and India’s widening fiscal deficit has kept up the pressure.

(Home page image courtesy Shutterstock)

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