NRIs relieved as rupee hits low

Non-resident Indians (NRIs) in the UAE and elsewhere across the Gulf and, indeed, the world, are breathing a little easy as the Indian rupee is seen reversing its recent gains, falling to a seven-week low in early trade this morning.

The Indian rupee has once again broken the 50-mark against the US dollar, and was trading at Rs50.72 against 1 US dollar at around 8.20am UAE time (4.20am GMT) this morning.

The UAE dirham, which has a straight peg to the US dollar, therefore strengthened against the Indian rupee, with Dh1 fetching Rs13.80 at 8.20am UAE time. The rupee touched a four-month high of Rs13.23 against the UAE dirham on February 4, 2012 – the strongest it has been this year – but has since shed more than 4 per cent.

Rising oil import payments thanks to a higher international oil price, and a waning of international investor interest in the emerging market due to a diminished risk appetite and India’s weak financial projections are being cited as reasons for the rupee’s recent slide.

“The Rupee’s losses came on the back of rising crude oil prices, the dollar’s strength globally, a weaker stock market and month-end demand for dollars,” said Subhash Gangadharan, currency analyst at India’s HDFC Securities.

“Weaker-than-expected third quarter GDP data also brought forth the growth concerns and dampened the market sentiment. Week-on-week, the USD-INR pair gained 1.24 per cent,” he said.

With some stable data and numbers starting to come out of the US economy, the dollar has gained currency (pun intended) of late, with precious metals – the alternative safe havens – declining in the past week or so on weaker demand.

Simultaneously, an increase in global crude prices is putting pressure on the economies of most of the world’s oil importing countries, including India. “Pressure on the rupee can mount if the greenback continues its gain into this week. Even the recent Brent crude oil prices could dampen the rupee further. Merchandise trade deficit is widening again as exports growth is slipping,” said Gangadharan.

India’s January trade deficit widened to $15 billion, with the recent spike in oil prices expected to compound that figure for the rest of the months, adding to the deficit via a heftier import bill.

Although the Indian central bank – Reserve Bank of India – intervened in December last year when rupee reached a lifetime low of Rs14.62 against the UAE dirham (Rs53.71 against the USD), its ability to intervene every time the rupee is under duress is seen limited.

“The RBI’s ability to intervene to support the rupee by selling dollars is also constrained on account of tight liquidity conditions. Over the week, the USD-INR pair might trade in the range of 49.50-50.41, with a weakening bias for the rupee,” said Gangadharan.

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