Christmas comes early for NRIs: Rupee makes fresh lifetime lows

Christmas comes early for NRIs: Rupee makes fresh lifetime lows

One UAE dirham is now fetching Rs14.38; Indian stocks tumble

The Indian rupee fell to a fresh all-time low of Rs52.84 versus $1, and Rs14.38 against Dh1 on Monday at 17.05pm UAE time (13.05pm GMT) as the Asian currency came under renewed selling pressure on signs of a sharp slowdown in Asia’s third-largest economy.

The fresh lows came despite India’s apex bank – the Reserve Bank of India (RBI) – acknowledging in a bulletin that it had intervened in the foreign exchange market in October, for a second consecutive month, after the rupee came under tremendous pressure on deepening domestic and global growth concerns.

The rupee slipped through its previous low of 52.725 versus the dollar and 14.35 against the UAE dirham, made just three weeks ago on November 22. Today’s selloff was a direct result of very weak numbers announced by the government, with domestic factory output contracting for the first time in more than two years amid globally waning risk appetite.

This prompted investors to dump the beleaguered rupee in favour of the safety of the US dollar, as well as resulted in local stocks losing further ground, with the Bombay Stock Exchange Sensitivity Index (Sensex) losing over 343 points, or 2.12 per cent, and closing the week’s first trading session at 15,870 points.

With the rupee plunging to fresh lifetime lows, remittances from the UAE and across the world are expected to surge as NRIs take advantage of a favourable conversion rate.

The strengthening dirham and a constantly weakening Indian rupee has recently seen up to 20 per cent spike in remittances from the UAE’s Indian expatriate community, a senior official of one of the largest money remittance agencies in the country told 'Emirates24|7'.

“In the initial stages of the current depreciation, we saw a sudden and major increase in remittance volumes,” Y Sudhir Kumar Shetty, COO – Global Operations, UAE Exchange, said in emailed comments to this website. “Compared to the normal trend, volumes increased by more than 20 per cent,” he confirmed.

“There [is an] increase in volumes as and when there is a significant depreciation in the rates,” Shetty said, adding that the initial surge has subsided. Experts believe that many non-resident Indians (NRIs) may have already sent their savings home at a favourable exchange rate. “Now the upsurge has come down and the flow is somewhat normal, though uptick is there,” Shetty said.

“It’s not a normal feature on the volume rise as most of the remitters remit home on monthly basis irrespective of the rate movement,” Shetty added. The remittance surge, however, might return if the downward trend in the rupee persists and it tests its previous lows.

The rupee is now down almost 20 per cent in a little over four months – from 44.07 against the dollar (11.998 against the dirham) on August 2, the rupee slumped to 52.84 on Monday, its all-time low levels, beyond its previous lows of Rs52.22 against the US dollar made on November 22, 2011.

The strength of the dollar (and dollar-denominated currencies such as those in the GCC region) has resulted in huge money transfers to India, already the world’s largest recipient of remittances. According to the World Bank’s Migration and Remittances Factbook 2011, India is the largest recipient country of remittances, receiving $55 billion in remittances in 2010.

However, despite the rupee remaining weak and repeatedly making new multi-year lows, a section of experts believes that now that the rupee has broken the 52-mark, it could go as low as 58 against the dollar (15.79 against the UAE dirham).

One such expert is Laurence Balanco, Asian Technical Analyst, Credit Lyonnais Securities Asia (CLSA), a brokerage and investment group. “The rupee at a minimum price will retest the Rs52 level [against the US dollar], which are the previous highs. A break above that will open a road for a move up to Rs58 area,” Balanco said in a televised interview with CNBC-TV18, an Indian business news channel.

“The emerging market currencies have been weakening, which is the general theme of dollar strength versus emerging market currencies. The technical set up for that is the dollar strength against emerging market currencies,” Balanco added.