Stock Money exchange rupees
The Indian central bank has been active in the currency markets to prevent the rupee slipping too low against a powerful dollar. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Will the India rupee drop to 80 against the dollar (or 21.75 and over to the dirham) as the US Federal Reserve prepares to launch another interest rate hike to take on inflation? Early signs indicate the rupee will start weak at 79.82/79.84 (21.73/21.75) levels even as the dollar takes on more strength. 

Indian rupee’s all-time low against the dollar is the 80.11 it hit on August 29. 

“The rupee had been relatively stable last week, at just under 21.70 – but the rate hike later this evening could lead to some turmoil,” said an FX analyst based in Dubai. “The Pakistan rupee is showing 240 plus against dollar, which is at its lowest ever point; the euro is barely at parity with the dollar; and the pound sterling too is severely weakened.

“Against these broader market trends, the Indian rupee could slip further.”

According to data, India’s central bank has been using its dollar reserves to hold back the rupee from dropping too fast under the dollar’s assault. If this continues, it could yet prevent further drops, according to some industry sources.  (Check the latest forex rates here.)

“The INR has been among the best performing currencies as of now," said a senior official with LuLu Exchange. "We are witnessing FIIs (Foreign Institutional Investors) re-enter the market and the stock market performing better as well.

"This, coupled with other factors have helped RBI (Reserve Bank of India) to control rupee’s slide. We feel INR will not move below 79.15-79.20 against the USD (or below 21.45 against the dirham). Geo-political tensions persist and anything can happen to affect this. But under present conditions, we feel the chances of breaching the 80 mark against USD are slim.”

It was in May that the rupee dropped below 21 against dirham, and through July came under renewed pressure as worried mounted about inflation and the need for more rate hikes by central banks. So far this month, it has been a smoother ride for the INR, helped by fund inflows, the RBI moves to calm the markets, and the dollar itself shedding some gains.

PKR back at 240
The PKR is now trading at all-time lows of 240 against the dollar, fuelled by concerns over the mounting costs involved in rebuilding vast swathes of the country after the terrible floods and loss of lives.

Close eye on markets

UAE expats thinking of making gains from the latest bout of currency uncertainty, keep a close watch on market moves in the next 48 hours. If the Fed sticks with a 0.75 per cent rate rise, chances are that the stock and currency markets will shrug it off. But of the hike comes to 1 per cent, prepare for some short-term turmoil.

And with currencies sliding against the dollar in such a situation, that’s the chance remitters should prepare for.