Remit or hold? Indian rupee set to weaken further in coming months

Dubai: When it comes to sending money back home, it is vital to know whether it is currently an ideal time to remit. So if you were wondering whether or not you should send Indian rupee back home now or wait a bit, here's what analysts are saying.

Although the Indian rupee is currently steady at 22.28 against the UAE dirham, the currency is not expected to stay at such levels for long as it is seen dropping further in the coming months, so it would be cost-effective to hold your remittances to take advantage of rates. Check the latest forex rates here.

The Indian rupee will fall further in the coming months and is expected to drift back to trade around where it is now in 12 months, according to a Reuters poll of FX strategists. After falling more than 10 per cent in 2022 the rupee has traded within a 80.88-82.95 per dollar range this year and was seen staying in that range over the horizon.

Any weakness or strength in the Indian currency's value against the US dollar will be automatically reflected in its exchange rate with the UAE dirham as the UAE currency is pegged to the dollar. Against the US dollar, the Indian rupee was at 81.82.

Rupee pressure

Median forecasts from 40 respondents to a March 31-April 4 Reuters poll showed the rupee trading at 82.40/dollar by the end of the month and 82.55/dollar by the end of June. It is forecast to drift up to 81.50/dollar in 12 months' time. However, a fifth of respondents forecast the currency will change hands at 82.90/dollar or weaker as early as next month.

A strong majority of Reuters poll respondents who answered an additional question, 13 of 16, said risks to their forecast were skewed towards the rupee being even weaker over the next month.

The indication from the US that the world's largest economy is near the end of an historically aggressive tightening cycle provided some relief to most currencies last month, with the rupee up 0.6 per cent. But the poll expects the currency to come under pressure again. "The US might raise rates once again in May, which is keeping the dollar... supported," said Sakshi Gupta, principal India economist at HDFC Bank.

While the Reserve Bank of India (RBI) has raised its rate far less than the US during this cycle, it also has less scope to lower borrowing costs over the forecast period, Gupta said. "So the yield differential and yield-seeking behavior might attract some flows into India," she said, referring to later in the forecast period.

Depreciating trend

The partially-convertible rupee, which has depreciated in nine of the past 10 years, hit an historic low of 83.26 last October, forcing the RBI to intervene.

Despite burning through billions of dollars of foreign exchange reserves last year to combat the dollar's strength, at $578.78 billion the RBI has enough firepower to carry on with its interventions to prevent excess volatility. That is another reason the currency is likely to stick to ranges.

"A key driver of the Indian rupee will continue to be the RBI's FX intervention strategy," noted Lin Li, head of global markets research Asia at MUFG. "In our view, the RBI seems to dislike excessive FX volatility, especially if it is driven by portfolio flows (in both directions)."

- with inputs from Reuters