Stock - India Economy - Rupee
High commodity prices and flux induced from the Russia-Ukraine conflict to subdue the Indian rupee this week. Image Credit: Bloomberg

Dubai: High commodity prices and market flux induced from the Russia-Ukraine conflict is expected to subdue the Indian rupee against the UAE dirham in the weeks ahead. 

The India rupee is currently at remittance-beneficial rates against the UAE dirham at Rs20.86 to Dh1. The value is down 15 paise after the last closing at Rs20.71. Check the latest forex rates here.

Indian rupee has been recording sharp declines against the UAE dirham ever since the Russia-Ukraine conflict broke out last last month, forcing the currency to briefly touch Dh21 at one point last week. The rupee hit an all-time low of Dh20.99, lowest ever level against the UAE currency briefly on March 7.

The Indian currency managed to recoup some of its lost ground for the rest of the week, largely driven by Reserve Bank of India’s (RBI) intervention in the market through an additional supply of dollars.

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.

High commodity prices to keep rupee under pressure

Alongside high commodity prices, outflow of foreign funds from equity markets combined with the Russia-Ukraine war is expected to keep the Indian rupee subdued in the short to medium term. The trend is expected to widen India's current account deficit to over $20 billion in the third quarter from $9.6 billion in the second quarter.

At present, the crisis has led to a global spike in international prices of crude oil, natural gas, coal, nickel, copper, aluminium, titanium and palladium. Moreover, India is a major importer of these precious as well as industrial commodities.

Furthermore, the spike in commodities' costs is expected to trigger an inflationary trend and ultimately a reversal in monetary policy. This will further accelerate outflow of foreign funds or FII selling from equity markets.

(A foreign institutional investor (FII) is an investor or investment fund investing in a country outside of the one in which it is registered or headquartered.)

Russia-Ukraine conflict to keep rupee weak this week

"Rupee is expected to remain weak. However, de-escalation in the crisis shall be positive for the rupee," said Sajal Gupta, Head of Forex and Rates at India-based Edelweiss Securities. "In India, FPIs have sold almost $13 billion this year itself, which has added pressure on the rupee."

On last Friday, the rupee closed at 76.5950 to a USD. Just a few days ago, the rupee had hit its record low at 77 to a greenback. However, interventions by the Reserve Bank might cap the downside to rupee against the USD.

The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.

"We expect that volatility in the rupee could continue to remain elevated but this could be curtailed by the RBI by active intervention," said Gaurang Somaiya, Forex and Bullion Analyst at India-based Motilal Oswal Financial Services.

"With the above factors in consideration, we can see that the overall bias as such for the rupee is towards depreciation against the US dollar and expect that dips 75.80 and 75.40 for the USD-INR pair. This could be used as a buying opportunity for targeting towards 77.70 and 78 levels. The view could be negated only if the pair closes below 74.70 levels."

- with inputs from IANS