Indian Rupee
Remit or hold? Indian rupee value to fall further against the UAE dirham this week Image Credit: Shutterstock

The India rupee is currently at remittance-beneficial rates against the UAE dirham at Rs20.76 to Dh1, and analysts flag that the value of the currency is expected to stay weak this week.

The value is down 15 paise after the last closing at Rs20.61. Check the latest forex rates here. The Indian rupee is expected to remain under pressure exerted by high commodity prices, and the resultant inflationary pressures in the country and countries elsewhere. On Friday, the rupee closed at 75.80 to a greenback or $1.

Lately, high commodity prices, as well as outflow of foreign funds from equity markets have weakened the Indian rupee against the US dollar. Weakness in the rupee's value against the US dollar will be automatically reflected in its exchange rate with the UAE dirham as the UAE currency is pegged to the dollar.

Pressures to stay this week

Inflationary concerns over elevated commodity prices are expected to maintain pressure on the Indian rupee during the upcoming week. Accordingly, high crude oil as well as other raw material prices are expected to unleash a domestic inflationary wave.

This trend, said senior analysts, will dent growth prospects along with leading to an eventual rise in interest rates. However, fiscal end dollar selling by software majors will arrest any sharp downfall in rupee value against the US dollar. Consequently, the spot USD-INR rate is expected to settle in the range of 76 to 76.50 for the next week.

"Crude and rising US yields kept the rupee weak amid Ukraine war concerns," said Sajal Gupta Head Fx and Rates at India-based Edelweiss. "Rising inflation is a concern across the globe and does not see a immediate solutiona which shall keep the currency weaker."

Inflationary concerns over elevated commodity prices are expected to maintain pressure on the Indian rupee during the upcoming week.

Higher crude oil remains a problem

Last week, the rupee depreciated by half a per cent amidst a strong US dollar, higher crude oil and weaker risk sentiments. The rupee closed at 76.20 to a greenback after swinging between 75.80 and 76.50 to a US dollar.

"Biggest driver remains crude oil prices and sentiment towards equity markets," said Devarsh Vakil, Deputy Head of Retail Research at India-based HDFC Securities.

"We expect the Reserve Bank of India (RBI) to keep utilising its large forex reserves to keep the INR stable at around current levels. The bias for USD-INR rates remains skewed to the upside following continued geopolitical worries and broad-based selling by foreign institutions."

Will the central bank intervene?

The Reserve Bank of India (RBI) is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.

Gaurang Somaiya, Forex and Bullion Analyst, India-based Motilal Oswal Financial Services, said: "Next week, on the domestic front, market participants will continue to monitor how crude prices will be moving and at the same time, Foreign Institutional Investors (FIIs) participation will be important to watch. (Foreign Portfolio Investors or Foreign Institutional Investors (FPIs or FIIs) have been a major driver of India's markets.)

"Fiscal deficit and trade balance number will also be released next week and will be influencing the rupee."