Asian expats feel pinch as rupee, peso stay strong against dollar

Indian and Filipino expatriates in the region are squirming as their countries’ currencies hit six-month highs against the US dollar, to which most Gulf currencies, including the UAE dirham, are pegged.

The rupee is currently trading at Rs11.96 to Dh1, with the Indian currency reaching a six-month high against the US dollar this morning at $1 to INR44.15322, it’s strongest showing since April 26 this year.

The Philippines peso, on the other hand, is trading at Php11.71 to Dh1, reaching a 22-month high against the US dollar yesterday at $1 to Php43.1313.

The UAE dirham (which is pegged to the US dollar) has weakened almost 15 per cent against the rupee since it touched a high of Dh1 to INR14.25 in March last year, and is currently trading at Dh1 to less than INR12, although it remains well above the 2007 low of Dh1 to INR10.65.

Similarly, the Philippines peso is trading near its strongest level in two years on speculation policy makers will tolerate appreciation to curb price pressures and bolster the country’s economy.

“We see continued acceptance of peso gains,” said Dariusz Kowalczyk, Hong Kong-based chief economist at Credit Agricole CIB. Capping the deficit this year “would increase government credibility and would be peso-positive,” he said.

Saddled with additional burden of having to spend more dirhams to remit the same amount of local currency every month, the impact of exchange rate loss is particularly heavy on individuals who have loan instalments to settle or regular bills to pay in their home countries.

“The Indian rupee is becoming stronger and this has been happening for the past 10 days or so. Due to a weaker dirham versus the rupee, people are holding back and transferring less money back to India,” said the head of UAE Exchange branch in Al Barsha.

Abhimanyu Chauhan, a salesperson with a leading IT retailer in Dubai, said he was worried about the strengthening of the rupee. “When I decided to come here, I did my calculations based on the then exchange rate in 2008, when things were a lot different. Today, the exchange rate looks much different and I have had to control my expenses here to make sure that I keep servicing my mortgage instalments back home,” he said ruefully.

“I check the rate on a daily basis to make sure that I remit money at the best possible rate, but of late it’s been declining steadily,” he added.

“They [Indian expatriates] are observing the rate carefully,” agrees the UAE Exchange official. “It’s very difficult to say where the Indian rupee will go from here as there are many factors involved. The strong performance of the Indian stock market may make the rupee even stronger,” he said.

A steadily strengthening rupee is not welcome news for the millions of Indian expatriates, especially those in the lower income group in the UAE and other countries in the region whose currencies are linked to the dollar.

For long, Indians abroad have remitted a large proportion of foreign currency to their home country, boosting India’s foreign exchange reserves from $9.8b in March 1993 to $292b in the week ended September 24, 2010.

With nearly 5.5 million non-resident Indian (NRIs) living in the Middle East, they outnumber the combined Indian populations of the US (2.2 million) and the UK (1.5 million).

Remittance by Middle Eastern NRIs forms a substantial part of the Indian reserves. Gulf expats – largely from the working and middle classes – sent some $27.5b of remittances back home to their families this past year alone, according to the Reserve Bank of India, the country’s central bank.

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