Indian rupee weakens on RBI 'jumbo' cut - best time for NRIs to send money?

Dubai: The Indian central bank has announced a massive 0.5% interest rate cut, which should have an impact on the rupee in favour of Indian expats in the UAE and other Gulf countries.

The Indian rupee is at 22.30 plus levels to the dirham, and yesterday (June 5), it had weakened to 23.40. Now, these levels are considerably lower than the 23.1/23.2 the INR had been against the dirham.

The coming days could be favourable for those Indian expats who had been hoping for the INR to soften. Since April, the INR had been holding firm against the dollar and dirham for the better part, and which reduced what NRIs could get out of their remittances.

The Indian stock markets have responded positively to the latest RBI moves, with the Sensex gaining 575 points within 30-45 minutes of the announcement.

"A rate cut typically weakens the INR by narrowing interest rate differentials with the US," said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services.

"The full impact will hinge on RBI’s forward guidance. A dovish tone could lead to further depreciation, while a neutral stance may stabilize the rupee."

This is the central bank's third rate cut this year after a series of hikes in recent years. The market had been expecting a 'jumbo' rate slash, and that's exactly what's been handed out by the RBI.

"Indian expats are benefiting from better exchange rates to the dirham (or Saudi riyal) compared to the previous week's range of 23.25 to 23.28," said Neelesh Gopalan, Treasury Manager at a Dubai-based fintech. "This is good news for expats remitting money back to India - more so as they receive better value for their foreign currency during Eid festival."

In another fairly bold move, the RBI cut the Cash Reserve Ratio (CRR) for banks, which means they will be able to free up more funds as loans to businesses and individuals. The CRR trim was by 100 basis points - and that's quite a significant step.

India's economy is now the world's fourth biggest and in with a chance to move up another rank. The GDP is expected to put in a solid 6% plus growth.

"The CRR cut alone is expected to inject Rs2.5 trillion into the banking system, significantly improving liquidity," said Milan Vaishnav, founder of ChartWizard.ae.

"Indian markets have responded positively, with key indices rallying on hopes of enhanced credit flow and lower borrowing costs.

"The sharper-than-expected easing signals the central bank’s proactive stance in cushioning the economy against external and domestic headwinds.

"This move could bolster consumption and investment activity, providing near-term support to equity markets, particularly rate-sensitive sectors like banking, auto, and real estate."