Dubai: With the rupee still holding on to a relatively firm Rs20.04 to the dirham, Indian expats in the UAE will have some thinking to do before they send their next remittances. Chances of the rupee firming up further to Rs19.90 levels heading into February are rated as a high possibility.
If the exchange rate drops below Rs20 to one dirham, it will mark quite a turnaround for the rupee, which was treading weaker for most of December and dropped to 20.78 and within touching distance of the all-time low of Rs20.80. Then, in the final 10 days of 2021, the rupee started its recovery and, now, even levels below Rs20 seem a possibility.
All of which will have left enough doubts in the minds of those India expats waiting for the next favourable exchange rate to send their funds. According to Antony Jos, Managing Director at Joy Alukkas Exchange, they should keep close watch on three near-term events.
“On February 1, India will announce its 2022-23 central budget and that’s always been a time for changes to the rupee,” said Jos. “The next big date for the rupee would be March 10, when elections to five states, including the major one in Uttar Pradesh, will declare the results.
“The third will also likely be in March, when the US Federal Reserve set to announce the first interest rate hike from the current all-time lows.” Quite a list of dates to keep track of ahead of the next round of remittances.
Chance for a drop
The US raising interest rates – first of a proposed three for this year – will be the big moment as far as the rupee’s fortunes are concerned. The rupee along with other emerging market currencies will come under immediate pressure. (In fact, the talk of 2022 rate hikes during early December was what pushed the rupee lower last month.)
Budget bounce?
Will the upcoming federal budget then provide a short-term bounce for the rupee? The forecasts are for the Indian economy to put in one of the highest growth rates this year – and for that to happen, the budget needs to come up with the goods. Infrastructure spending will be a big thing, but equally vital for the Modi government will be a re-emphasis on the agriculture sector. (A sweeping set of reforms that could have triggered a generational change in the sector was rolled back after stiff protests by farmers.)
In December 2021, the dirham-rupee level had dropped to 20.78, while the corresponding dollar figure was 76.36.
Current levels are good
There are many who believe the current Rs20.04-Rs20.10 levels are just right. A higher level could end up hurting India’s exporters, and put a hurdle on growth chances. (On Tuesday morning, the rupee is trading at 73.94 to a dollar.)
“It is noticed that there is an effort by traders to push it above the Rs74 to the dollar mark, although the RBI (Reserve Bank of India) may not be interested at this stage to strengthen the rupee,” said a representative at LuLu Exchange. “We feel that there will be some pre-budget correction in the near future on account of which rupee might move towards the 75 mark.
“In the short-term - i.e., a month from now - we hope to see the rupee be in the range of 73.88 to 74.80 against the USD.”
