Dubai: The Indian rupee, which has been on a losing streak, is expected to fall further, and that could be good news for expats staying in the UAE and GCC to get better rates in the backdrop of a potential rate hike in the United States.
On Thursday, the rupee advanced to its highest level in a week, but not far away from the recent low of 66.645, accumulating 3.5 per cent of losses in August, the most in two years.
“Rupee is on a depreciating bias, with the Chinese yuan devaluation triggering that response. Since it has been undervalued for a while, it firstly need to come to fair value and then probably depreciate some more to counter any more such devaluation threats from other countries as well as a reaction to China,” said Gnanasekar Thiagarajan, director at Commtrendz Research.
Last month’s turmoil in global markets, sparked by China’s surprise devaluation of the yuan on August 11, rattled investors and boosted speculation the Fed will delay tightening.
“In the short-term we see it moving in the 64.75-65.00 to 67.50-68.00. One huge relief unlike the other times when Rupee depreciated due to weak economic sentiment, is that the fundamentals are not bad. Growth in the 7 per cent is even higher than China and our import bill has more than halved thanks to falling crude prices,” Thiagarajan said.
The currency sank to an unprecedented 68.845 in August 2013 after the Federal Reserve’s signal to end bond purchases caused an exodus of funds from emerging-market assets. Vietnam also devalued its currency this month while Kazakhstan relinquished control of its exchange rate.
Currency wars in the region and elsewhere would also give more reasons for the government to keep the currency weak to boost exports. “It is obvious, to let it’s currency depreciate further as such a depreciation will result in more exports and inflows. In India’s case more money will enter into the country as a result of a weak Rupee,” Thiagarajan added.
“My own sense is that the dollar could come under pressure post the rate hikes as the FED could take a huge pause before embarking on any further hikes to see if the rate increases has any negative impact on the economy. Also, a stronger dollar could dent exports badly. So, it could be buy the rumour, sell the news kind of an event post the rate hike if and whenever it happens,” he added.
Expats celebrate
Reflecting this weakness, Indian rupee hit a two-year low of 18.10 against the dirham.
“Although these low rates might not spell good for the Indian economy, expats have welcomed these rates with open arms,” Adeeb Ahamed, chief executive officer at LuLu International Exchange told Gulf News.
Exchange rates for Indian rupee across the GCC have also been at their highest in quite some time, with the currency going for 18.70 against the Qatar Riyal, 17.29 against the Saudi Riyal, 173.05 against the Oman Riyal, 217.49 against the Kuwait Dinar and 174.06 against the Bahrain Dinar.
“There has been a slight spike in the number of transaction as well as volume sent across to the South Asian corridor. Much of it has been a high volume transaction with remittances being done by people who held back their money looking for better returns. The rates may prevail for a few more days but the downfall is limited,” said Ahamed.
“Many salaried Indian expats are hoping for the rate to stay until the end of the month, so that they can capitalise on the good exchange rate, since they have already remitted a part of their income at the start of the month and have to wait until the next pay comes to make any transactions,” Ahamed said.
It is not just the Indian rupee that has gone to recent-record lows, but also currencies of Philippines, Pakistan, Bangladesh, Nepal and Sri Lanka as well. The Philippine peso hit a five-year low of 12.75 peso against the dirham, which is great news for Filipino expats. But as with Indian expats, Filipinos too are hoping that the rate will hold until the end of the month.