Dubai: The Indian rupee’s slide looks to have been halted… for now. In fact, it’s getting stronger, with the rupee trading at 19.53 levels early on Tuesday.
“The latest announcements by the Indian government/central bank is the reason for the lift from 19.6 levels,” said a market source. “This was expected, but it needs to be seen whether this mini-rally will sustain or drop to levels around 19.6/19.65 by the end of trading today.”
After dropping as low as 19.67 to the dollar on Monday, it firmed up to 19.58 after India’s Central Bank announced it will park its surplus funds with the government. The size of the funds? A whopping 1.76 trillion rupees and more than double of a similar transfer made last year.
“For the short-term, this should stabilise the rupee at around the 19.5/19.6 to the dollar levels,” said Anthony Jos, Executive Director at Joyalukkas Exchange. “The size of the transfer dictates that - the stock markets have already responded positively. The currency should follow the same path.”
Hold or send?
Where does that leave the expat Indian: should he be sending the cash back at these levels or wait for some sign that despite the $1 trillion plus transfer, other factors could affect the rupee?
“Rule of thumb is that any level above 19.40 to the dirham is a good time to send remittances for NRIs,” said Jos. “That level should be there despite the government announcement.”
The rupee was at 18.98 to the dirham on January 1 this year. All through July, it was averaging 18.7, and that month saw the highest remittance flows from here to India so far this year.
On Monday, the rupee dropped to be a near eight-month low of 19.6 to the dirham, and that’s when the central bank came up with the announcement of the fund transfer. That announcement did much to soothe stock market investors, with the main index closing
Not just an internal matter
How the rupee fares going forward will, however, continue to be dictated by what continues to change elsewhere. The US-China trade spat continues, with the latest being that negotiations will start again. This could be a breather for global markets, stocks, currencies, et al.
But the longer the trade talks drag on, the closer it gets to a full-blown crisis for the global economy. That’s where the risks are for emerging economies.
“In the short term, rupee may breach 74 to the dollar (it is at 71.82 now) due to devaluation of Chinese yuan in the face of the global slowdown and trade war,” said K. K. Rathi, Managing Director at Indianivesh Fund Managers. “However, in the medium term rupee may emerge as more stable if India continues to have low inflation, maintains the “fastest global economy” tag, and in the likelihood of oil prices remaining subdued.
“Prudent management of government finances will have a positive impact on the currency, which then may not depreciate more than 3-4 per cent on an average over next few years.”