Dubai: The Indian rupee has firmed up against the dirham, with UAE currency houses setting the exchange rate for early Thursday (May 5) at 20.63. The rupee had been at 20.80 and over levels on May 2, and the sudden increase after the Eid holidays will slow down remittances.
Multiple reasons are being attributed for the rupee’s gains. First, there was the move by Reserve Bank of India to increase base rates by 0.40 per cent to 4.40 per cent as the country’s economy tries to ward off the worst of inflationary pressures.
Then came the US Federal Reserve with a 0.50 per cent hike. “Even then, it’s not as high as the 0.75 increase many had been forecasting,” said Antony Jos, Executive Director at Joyalukkas Exchange. “That the Fed only raised it by 0.50 per cent has been another booster for the Indian rupee coming just after the RBI increase.”
Steady in the short-term?
Exchange house sources say the current rupee strength should remain intact in the coming days. “Remittance-wise, it would be best to remain patient for Indian expats,” said a senior official with the treasury operations at LuLu Exchange. “The Reserve Bank of India’s move is what set off today’s rupee gains (after the Eid holiday yesterday). Also, the CRR (Cash Reserve Ratio) has been increased and banks in India will need to retain more funds, and that too is playing to the rupee’s strength.”
“Expect more of the same in the next few days.” In other words, Indian expats in the UAE have some planning to do on their next remittance.
India’s stock markets also have opened in positive territory after Eid, with Sensex gaining 576 points at 12.30 India time. Expectations are also building for the LIC (Life Insurance Corp.) public offering, which will be India’s biggest listing to date.
"India surprised markets with an unscheduled 40 basis point interest rate hike," said Jeffrey Halley, Senior Market Analyst, Asia-Pacific, Oanda. "That send the Sensex tumbling (on Tuesday), while the Indian rupee surged higher. It speaks volumes about the inflation stresses that central bankers are facing now that India has shifted its policy bias.
"India’s RBI has tolerated stagflationary monetary conditions throughout the entire pandemic to keep the lights on in the economy. Its shift is an important one, and it will be interesting to see if other Asian central banks start blinking on inflation as the year progresses."