Dubai: An already weakened Indian rupee started the week with more pressure piling up, at 21.29 to the dirham early on Monday. From here, it could turn even more volatile with the US Federal Reserve set to announce its next rate hike on June 15-16.
Will this see the rupee fast-tracking its way to 22 to the dirham? FX analysts and treasury officials are still uncertain about the speed at which this could happen. “Touching 22 is a certainty, the only question is when,” said one. “I would like to think further drops will be gradual than a sudden rush.
“The rupee’s decline will stick to the 1-1.5 per cent annual dips it has been seeing in recent years. That’s a range India’s policymakers will be comfortable with.”
Late last week, India went in for a second successive rate hike and citing a further hike in likely inflation rate for the financial year 2022-23.
On the remittance side, each dip represents an opportunity for Indian expats in the UAE. It was May 9 that the rupee breached the 21 level for the first time and has been caught in that range since. At various moments over the last 30 days it was felt that the country’s central bank would intervene and nudge the rupee back to the ‘comfort’ of around 20.50/20.60 to the dirham. That did not happen. So far this year, the rupee is down 5 per cent.
Early Monday (June 13), “The dirham-rupee exchange rate is at 21.15-21.20 against Friday’s closing rate of 21.05,” said a senior Treasury Analyst at LuLu Exchange. “Because of the Fed meeting this week, the rupee and most other currencies will remain volatile to the dollar. By Friday, the picture would be a bit more clear.”
The US central bank, which has already hiked rates twice this year, will have its third this week and have another go next month, to accelerate efforts to curb inflation rates in the US that are now at 40-year highs.
Higher Fed rate hike expectations will keep the pressure on Asian currencies this week and renewed lockdowns in China will make the situation darker still