Indian expats grapple with currency woes

Wilfred Manikutty has not sent money home for the past three months.

The Indian expatriate living in Sharjah fears that he is losing out on the relatively higher interest rate that Indian banks are offering, but he does not want to get a pittance for his dirhams.

As the US dollar continues to track a downward trajectory against the rupee, taking the dirham lower with it because of the local currency's peg to the greenback, several Indian expats are keeping their powder dry and waiting for the rupee to weaken. They are worried that a strong rupee actually means their salaries are worth less than they used to be, cutting substantially into their ability to save and invest in their home currency.

"I have a pretty substantial commitment back home in terms of monthly mortgage payments, but lately I have needed more and more dirhams to meet that fixed monthly amount," Manikutty said.

He now spends a little more time each day tracking the rupee's value against the dollar and dirham, and sends large chunks of cash to his non-resident bank account in Kozhikode each time the rupee falls to a range of 12.50 to 12.80 to the dirham. He then pays his mortgage and his aged parents' monthly allowance from that accumulated pool of rupees.

A softening US economy has put pressure on the nation's currency, resulting in stronger currencies elsewhere in the world. A second round of quantitative easing worth $600 billion (Dh2.21 trillion) announced by the US Federal Reserve last week has added to this pressure.

Continuing trend

After appreciating by more than 5 per cent this year against the dollar, the Indian rupee looks like it will continue to strengthen as analysts believe the US dollar remains vulnerable to further losses. This could be bad news for remittance flows into the country.

In the latest estimates for 2010, the World Bank said on Monday that India, China, Mexico and the Philippines retain their position as the top recipients of migrant remittances in US dollar terms. Other large recipients among developing countries include Bangladesh and Nigeria.

However, remittance flows to India, after growing robustly in the last quarter of 2009 and the first quarter of 2010, appear to have levelled off in the second quarter of 2010.

At the same time, increasing portfolio investments by foreign institutional investors into Indian share issues is creating additional demand for the rupee. This is seen as another factor that will keep the rupee strong against the dollar, and, consequently, the dirham. "For an expat like me to get any relief from the currency wars fought by nations, one of two things needs to happen," Manikutty said.

"Either the Indian economy cools down substantially and the rupee weakens as a consequence — as an Indian, I cannot find it in my heart to wish for such a thing — or the UAE depegs the dirham, at least partially, from the US dollar."

Given the global oil-price situation, this is considered to be extremely unlikely.

It looks as if Manikutty and thousands like him will have to simply bite the bullet and live with a weak dirham in relation to the rupee.