Dubai: The India rupee remains stuck at its lowest level 22.85 to the dirham (83.94/83.95 to the dollar) after the Reserve Bank of India kept interest rates unchanged for a 10th straight time.
There had been some expectations that the banking regulator would give some indication of when it too would start on the rate cut cycle, in the way the US Federal Reserve did last month and could add another soon enough.
“The INR has depriciated by nearly 1.1% in the current year,” said Krishnan Ramachandran, CEO of Barjeel Geojit Securities. “It is quite likely to fall further to around 84.05 in the near term and trade in the range of 83.90 to 84.10.”
For Indian expats in the UAE and Gulf, the current levels are as good as they get - and with a clear prospect of pushing itself to 23 to the dirham.
The RBI expects the economy to maintain its growth trajectory and inflation to moderate by end of the year.
Inflation keeps worrying RBI
That the RBI has not matched the step of Fed has to do with the still stubbornly high inflation rates the Indian economy is experiencing.
“Inflation rates are expected to prevail at 4.8% in the coming months, which is well over the target rate of 4%,” said Ramachandran. “The RBI expects the economy to maintain its growth trajectory and inflation to moderate by end of the year.
“There is now a possibility that interest rates may start to taper down by the year end.”
High-to-low for INR in 2024
The Indian rupee was at its strongest at 22.51 to the dirham (82.695 to dollar) on March 7. On October 4, it was at its lowest ever, of 22.87 (84.03).
In its latest briefing, the RBI is projecting the Indian economy to keep hitting 7% plus growth rates through the current 2024-25 financial year. That makes it one of the higher prevailing growth rates for a systemically important economy.
The country now has the world's fourth-largest FX reserves, a significant milestone that will come into play when deciding the movements of the rupee short-term.
There’s also the financial muscle brought on by the FX reserves it’s holding. “India's foreign exchange reserves have hit an all-time high, crossing $700 billion mark for the first time in September,” said Neelesh Gopalan, Senior FX Analyst at a local fintech.
“The country now has the world's fourth-largest FX reserves, a significant milestone that will come into play when deciding the movements of the rupee short-term.”
Good to go on remittances
The INR-AED 'remittances have seen a significant surge, with Indian expats enjoying the gains," said Gopalan. "This was also the time when many more used digital portals to send remittances to India, thus reducing their fee costs."
For some sectors, the stability on rates will be a boost, heading into a busy festival season. Home sales could benefit from the clarity on rates and - at some point - with a rate cut. It would help India's 'housing market to maintain momentum during the festive season', sais Anuj Puri, Chairman of the consultancy Anarock. "While a repo rate cut would have been preferable, it is clear that the RBI is on a tightrope walk and must keep various macro-economic factors in mind.
"From the point of view of homebuyers, the relatively affordable home loan interest rate regime will continue at a critical time for the Indian housing market amid rising housing prices and tapered sales."
In Q3-24, average housing prices rose a cumulative 23% in the Top 7 Indian cities even as 'average prices in these markets collectively rose to Rs8,390 per square foot from Rs6,800 per square foot in Q3-23'.
