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Customers at Lulu Exchange in Sharjah. The rupee went as high as 21.07 against the UAE dirham today. Here's why remitters are rushing to remit. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Indian expats looking to send money back home will be stay pleased as exchange rates against the UAE dirham continued to stay favourable, dropping further below Rs21.

Against the UAE dirham, the value of the Indian rupee hit a new record low on Thursday at Rs21.12, depreciating in value from yesterday's closing. The rupee dropped as much as 0.5 per cent to 77.6313 per US dollar on Thursday. Check the latest forex rates here.


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.

Rate hikes hit currencies 

The Indian currency has been under-pressure after global central banks started normalising policy and last week RBI too raised key interest rates.

The Indian currency for a brief while took a breather as it had appreciated from its earlier all-time low of 77.42 to 77.25. The Indian rupee hit a record low of 77.58 against the US dollar on Monday after the US hiked policy interest rates last week.

At the interbank foreign exchange market, the rupee settled at 77.20 against the US dollar, down 30 paise from its close of 76.90 hit on Friday. Earlier, the rupee opened lower at 77.17 against the dollar and hit a record low of 77.58 in the intra-day.

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On Monday, the Indian currency hit a new intra-day as well as the closing low. Image Credit: Ahmed Ramzan/Gulf News

Reeling from Monday's lows

On Monday, the Indian currency hit a new intra-day as well as the closing low. The previous record closing low of the Indian currency was 76.98 against a dollar hit on March 7. On Monday a new record of 77.50 against a dollar was hit.

The US dollar has strengthened against major global currencies after the US cnetral bank last week hiked the policy interest rate by 0.50 per cent. In the last two trading sessions, the Indian rupee has weakened by 115 paise against the US dollar. The rupee had lost 55 paise against a dollar on Friday.

In India, inflation rises by 0.1 per cent to 0.2 per cent with every 5 per cent drop in value of the Indian rupee, calculations by the Indian central bank (RBI) indicate. This is why forex analysts note that as the RBI was late to raise interest rates to tackle the presently high inflation, the currency's prospects have dimmed.

Indian rupee to weaken further

India-based investment service provider Geojit evaluated how the rupee depreciation may continue. Rupee depreciation may continue, but will impart resilience to some big Indian stocks, said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

India's central bank is intervening in all foreign-exchange markets and will continue to do so to protect the rupee that slid to a record low Monday, a person familiar with the matter told Bloomberg, asking not to be identified as the deliberations aren't public. The RBI is seeking an orderly depreciation, the person further added.

While most analysts hesitate to take a call at this stage when it comes to how far the Indian rupee will drop, some foresee the rupee falling as much as Rs79 or Rs80 to a US dollar, when factoring in the given risks. If it falls 6 per cent to 8 per cent from 75 against the US dollar, it will cross the 80 mark.

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India's central bank is intervening in all foreign-exchange markets and will continue to do so to protect the rupee that slid to a record low Monday. Image Credit: Ahmed Ramzan/Gulf News

How far will the rupee drop?

The above trends imply that against the UAE dirham, the Indian rupee will stay below Rs21 in the days to come. However, analysts collectively agree that the RBI will intervene further if the currency starts to decline even more, aiming to reduce volatility. Apart from students, travellers and expats looking to remit, the impact would be on the country's inflation.

This is particularly because inflation is currently riding very hot, with a 6.95 per cent to 7 per cent rise in March and forecasts indicating inflation to have touched 7.5 per cent in April. Other reasons why the rupee will stay lower include high crude prices, trade deficit, and higher selling among foreign investors.

Apart from India, other Asian currencies are also feeling the heat, with the Japanese yuan currently at the lowest in 18 months. However, a falling rupee is more vulnerable than other Asian economies because India imports almost 80 per cent of its crude and crude prices are not expected to drop anytime soon.

Peer currencies feel the heat

This is pressuring the country's current account deficit and is likely to depreciate the currency even more in the coming days. With the US central bank expected to raise rates further, the Indian rupee was already expected to come under pressure. This is why the RBI has been protecting the rupee these past months.

However, forex analysts further note that the top lender probably feels the rupee has depreciated too much. The RBI can sell US dollars from the forex reserves. Reserves have fallen by about $45 billion to $50 billion, which is around 8 per cent to 9 per cent of the total forex available with India.

In 2008-09, the reserves had fallen by $50 billion to $60 billion and that was about 20 per cent of the total and the rupee fell by 20 per cent. While this indicates that the crisis is not over and RBI is seen hiking rates further as the inflation is very high, analysts do not see the rupee falling 20 per cent, at least for now.

- with inputs from Agencies