Time to remit: Indian rupee hits Rs21 against UAE dirham, will it drop further this week?
Indian rupee is at a new low to the UAE dirham, touching Rs20.95 against Dh1
With the Indian rupee hitting the much-awaited Rs21 against Dh1, expats in the UAE are keeping a close watch to see if the currency will drop further in order to remit more money back home.
The India rupee is currently at a new low to the UAE dirham, touching Rs21.00 after last closing at Rs20.81. Check the latest forex rates here. High commodity prices, as well as the outflow of foreign funds from equity markets, are expected to subdue the Indian rupee further this week.
Analysis show the Indian rupee staying at the Rs21-level against the UAE dirham in the coming days, and drop as low as Rs21.34 by next week, if the Russia-Ukraine crisis continues to escalate. But analysts add that before the currency drops even further the Indian central bank is expected to intervene.
RBI to intervene and cap INR losses?
Rising prices of crude oil along with other commodities triggered by Russia-Ukraine war will keep the rupee weak. However, interventions by the Indian central bank (RBI) might cap the downside to rupee against the US dollar. The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.
Weakness in the rupee'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.
"Rupee closed at 76.18 on Friday rattling under war cries and high crude prices. Expect this to continue for a while and expect further weakness till 76.80 next week or unless central bank intervenes aggressively," said Sajal Gupta, Head, Forex and Rates, at India-based Edelweiss Securities.
"Commodity prices across the globe would stoke inflation and push yuelds higher and this shall weaken the currencies." Lately, Brent-indexed crude oil prices have skyrocketed. On Friday, it stood at $113.76 per barrel from a 10-year high of $119.84 per barrel a day before.
Russia-Ukraine crisis to keep INR under pressure
Russia is the third largest producer of crude oil in the world. It is feared that sanctions against Russia will curtail global supplies and stifle growth.
The geo-political crisis-led global hike in crude oil prices is expected to push India's domestic prices of petrol and diesel by Rs 15-22 per litre. India imports 85 per cent of its crude oil needs. Consequently, the Indian rupee was the worst performing Asian currency for the past week, losing by whoppping 1.15 per cent.
"High crude oil prices are stroking fears of worsening fiscal deficit. High commodity prices will result in imported inflation leading RBI to change monitory policy stance and hike rates," said Devarsh Vakil, Senior Analyst (Commodities), HDFC Securities.
"USD-INR expected to trade in the range of 76.30 to 76.50 while the support has now shifted to 75.70. Developments on the war front in Ukraine will drive prices this week."
According to Gaurang Somaiya, Forex and Bullion Analyst, India-based Motilal Oswal Financial Services: "Thisweek, market participants will continue to keep an eye on the situation between Russia and Ukraine as any escalation could attract safe haven in the dollar and precious metals."
- with inputs from IANS