Indian rupee extends fall

The Indian rupee fell back to below the Rs14-mark against the UAE dirham for the first time in a week as the country’s stock market got bogged down by the government’s rollback on key retail reforms, weaker GDP growth estimates, and concerns ahead of the European Central Bank’s rate decision later in the day and the EU summit on Friday.

The Indian rupee has lost about a third of its value against the UAE dirham since 2008, when it traded at INR 10.72 against Dh1 on January 1,2008. “Anecdotal reports from money transfer companies suggest that remittances from the GCC countries surged in the third and fourth quarters of 2011 because of the weak rupee,” World Bank has said in its latest report on remittances, quoting Emirates 24|7 as its source.

The dollar, and in effect the UAE dirham, surged for a third session on Thursday after remaining lackluster since the beginning of December. After remaining below the Rs13-mark for almost a couple of years, the UAE dirham first broke the Rs13-barrier in September this year, and then surged past the Rs14-markon November 21, peaking to an all-time high of Rs14.33 (end of day) on November22.

The rupee, however, clawed back some of its losses in thefirst week of December, when the dirham fell below the Rs14-mark after the government announced opening up of the retail sector to up to 100 per cent foreign direct investment.

Nevertheless, New Delhi had to yesterday announce a rollback of the retail reforms in the face of political opposition from even some of its key allies in the UPA administration, which analysts believe is one of the factors that is dampening the overall market sentiment.

With 2011 remittances estimated at $58 billion bynon-resident Indians (NRIs) across the world, India emerged as the largest recipient of foreign remittances, followed by China ($57bn), Mexico ($24bn),and the Philippines ($23bn).

“After several years of appreciation, the sharp depreciation of the currencies of some major recipients relative to the US dollar – and the currencies in remittance source countries in the GCC that are linked to the dollar – in recent months is creating a ‘sale effect’ in the assets of the countries of origin,” it pointed out. “The higher purchasing power of each dollar of remittances may increase the incentive to remit, to take advantage of the higher purchasing power in the home country,” the World Bank report said.

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