India’s rupee closes at record low to US dollar, UAE dirham

Abu Dhabi: India’s rupee on Tuesday closed at an all time record low of 58.78 to the dollar ahead of a US Federal Reserve meeting on Wednesday where a decision could be taken on scaling back the Fed’s $85 billion-a-month (Dh312.13 billion) asset purchase programme as the world’s largest economy gains traction.

The rupee’s decline has coincided with the greenback’s rise against emerging market currencies in recent weeks. The rupee declined to a record low versus the UAE dirham too yesterday due to the UAE’s peg to the greenback. One dirham was fetching as much as 16 rupees on Tuesday making it an attractive proposition for expatriate Indians living in the UAE to remit money back home.

“Since the rupee has sunk to a new low versus the dirham, we are witnessing a high volume of remittances. The number of transactions has gone up significantly. We may continue to see high volume of remittances going forward, since this has become a trend whenever the rupee falls,” Ashwin Shetty, head of treasury operations at UAE Exchange, a money changer, told Gulf News.

Experts say, any signal from the Fed that it will start to scale back efforts to keep interest rates low would likely result in foreign institutional investors moving funds out of India, a move that would further weaken the rupee. India’s balooning current account deficit as well as its fiscal deficit and heavy dollar demand from oil refiners are the other major reasons for the rupee’s decline.

Currency expert Gaurav Kashyap at Dubai-based Alpari ME DMCC told Gulf News: “We see the recent downward move in the Indian rupee as temporary and will be capped at 59 to 59.50 against the US dollar. Domestically, the Reserve Bank of India has refrained from cutting rates and they have been protecting their currency against a move towards 60 against the US dollar, as recent action has suggested.”

He added: “But externally, the recent data flow out of the US suggests that the Federal Open Market Committee will have to continue with their current $85-billion-a-month plan as it is too early for talks of tapering and this should see the US dollar pare some of its recent gains.”