UAE’s Indian rupee remittances take a dive

But even with such favourable factors, UAE’s expats believe they are better off with cash in hand.

“The ongoing health crisis has put the fear of uncertainty not just for businesses but also employees, who fear a deduction in their salaries,” said Adeeb Ahamed, Managing Director at LuLu International Exchange. “While companies try to maintain business continuity, it is inevitable that losses will occur and salaries may be slashed.

“In light of this uncertainty, the natural tendency of people will be to save and keep as much money as possible instead of remitting.”

But Ahamad reckons that a certain level of remittances will continue, but with certain changes to the pattern. “The restrictions on movements have led to a staggered inflow of customers to the branches,” he said. “We expect this to result in remittances stretching across the month, unlike previously where remittance volumes peaked only on certain days.” (Also, the number of opening hours have also gone down at remittance branches.)

Compare that with the situation in the first 10 days of February, when rupee remittances more than doubled at most exchange houses in the UAE.

This time around the 3-month rupee volumes have been contained within 10 per cent, which otherwise in crisis times have shot up to as high as 25-30 per cent. The RBI had increased its buffer of FX reserves by around $60 billion over the last few months by absorbing the inflows and that is now standing in good stead.

- Abhishek Goenka, CEO of Mumbai-based IFA Global

Further drops?

It could be that NRIs are now taking a wait-and-watch approach on when to send money next. The rupee has been under pressure, which in recent weeks meant that it breached 75 to the dollar and then 76. On Saturday, it’s trading at 76.14.

But Abhishek Goenka, CEO of Mumbai-based IFA Global, believes the rupee will hold its ground rather than keep slipping.

“Despite outflows from India’s debt and equity markets to the tune of $17 billion in about a month, the rupee depreciated by around 5.5 per cent - much less compared to what we have seen in case of similar scale of outflows and panic in the past,” said Goenka.

So, what’s keeping panic levels in check? “The Reserve Bank of India has been intervening in the OTC (over-the-counter) as well as in exchange-traded futures to smoothen volatility.

“While on most occasions they have been offering dollars to prevent an upside, there have been instances when they have intervened more aggressively to hammer down the dollar-to-rupee difference,” said Goenka. There has been an element of surprise to the timing and aggression of its intervention… and that is what has made it effective.”

Took its time

Through February and most of March, it looked as if the Indian government and central bank preferred to be on the sidelines and let the rupee slide. That was what led to it crossing the 75 and 76 levels.

But now, the central bank is back in the frame, using up its $400 billion plus of dollar reserves to halt the slide.

Rupee’s highs and lows

Since January 1, the rupee’s range has been between 19.34 to 20.81 against one dirham. That compares with the 17.25 rupees, the lowest point in 2018, and 18.60 rupees, the lowest in 2019, against a dirham.

According to Ahamed, there was no escaping the April drop in transaction volumes given the state of the marketplace. He’s hopeful that remittance volumes could push their way back to normal at some point.

“What we need to understand is that a majority of expats work here to meet their financial obligations back home,” he said. “As long as they are getting their [monthly] income, even if not in full, they would prefer to send some of.”