Lanka rupee at lifetime low; Indian plunges too

2012 is turning out to be the year of optimism for the UAE’s huge South Asian expat community, with the Indian, Sri Lankan and Pakistani rupees, as well as the Bangladeshi taka all making their lifetime lows against the US dollar (and, therefore, the dollar-pegged UAE dirham) this year.

That means more bang for the expats’ bucks remitted to their respective home countries.

The Sri lankan rupee made its all-time low of LKR36.009 at 10am UAE time (6am GMT) this morning, breaking the LKR36-barrier against the dirham for the first time ever.

While the Indian rupee actually made its lifetime low of Rs14.62 against Dh1 a couple of weeks before 2012 kicked in (on December 15, 2011), the currency is currently under renewed attack due to growth concerns in one of Asia’s largest economies, and slumped to Rs14.39 against the UAE dirham in early trade this morning at 9.26am UAE time (5.26am GMT).

Today’s decline follows yesterday plunge – its sharpest single session fall in nearly a month – battered as it is by lack of capital inflows into the resource-hungry economy. The rupee fell 1.13 per cent yesterday (over last Friday’s close), and has already shed another 0.7 per cent this morning.

Analysts believe that the near-term outlook for the rupee remains weak and, barring any intervention by the country’s central bank, it could easily slide to its all-time low of Rs14.62 versus the dirham (Rs53.71 against $1), which it registered on December 15, 2011.

The Pakistani rupee, on the other hand, is trading at PKR24.82 to Dh1, within touching distance of its lifetime low of PKR25.02 to Dh1, which it registered just one month ago, on March 25, 2012. The Bangladeshi taka is trading at BDT22.27 to Dh1, admittedly some way off its lifetime low of BDT22.99, registered on January 31, 2012.

Experts cite a number of reasons for their bearishness on the Indian rupee’s outlook. Fundamental economic weakness, a ballooning fiscal deficit, policy paralysis at the central government level, lack of clarity about future interest rate cuts and an exodus of foreign capital thanks to a controversial set of proposed tax rules are factors that, when put together, mean that the rupee is in for a further battering in the short to medium term.

Month-end demand for dollars (to pay the country’s huge oil imports bill) is adding to the rupee’s woes, with importers forced to buy large amounts of additional dollars in the wake of high global crude prices.

In all likelihood, today’s session will mark the third session in a row that USD/INR will have closed above 52, intensifying speculation about when and to what extent will the country’s apex bank, Reserve Bank of India, intervene in the currency market.

Even if the RBI does intervene at 53 levels against the US dollar (Rs14.43 against Dh1), the impact of the intervention may be short-lived in the face of persistent fundamental weakness.