Rupee's record plunge to trigger remittance rush

Dubai - Further declines seen as RBI may not intervene to stall its fall

The plunge of the Indian rupee to a historic low on Thursday and the prospects of its further fall to a level between Rs70-Rs72 against the dollar in the near term are expected to trigger a major remittance rush at the Gulf money exchanges with only a few more days left for expatriate employees to draw their November salaries.
On Thursday, as the Indian currency plunged to 68.8650 per dollar, way past its previous low of 68.8450 reached on August 28, 2013, or Rs18.65, against the greenback-pegged UAE dirham compared to Rs18.18 in January 2016, exchanges houses said they are bracing for an unprecedented rush at remittance counters.
The rupee - which tumbled to a new record low as global funds dumped Indian assets amid rising odds for a US interest-rate increase and as a slump in local yields damped the appeal of the nation's debt - is widely estimated by analysts for further declines on expectations that there will be little intervention by the Reserve Bank of India to stall its fall.
There is speculation that the dirham-rupee exchange rates could be far more attractive at Rs19.05-Rs19.56 in the event of the Indian currency crossing the Rs70 barrier in the near future. However, all Indian expats are not overly enthusiastic to suddenly cash in on the windfall as some of them are in a real dilemma - whether to wait or not for the rate to cross Rs19 per dirham.
"I will rather wait to see if I could get better rates as those experts had forecast," said Rijesh Kumaran, an office assistant at a Dubai company.
Sudhir Kumar Shetty, president of UAE Exchange Centre, said at times such steep rupee depreciation, expats tend to send more than what they normally do. "Along with those sending for family maintenance, middle-income and high net worth individuals also send more now, triggering remittance volumes significantly," Shetty added.
"Also due to demonetisation of certain denominations among Indian currency notes, there is a scarcity of hard cash in Indian market. For this reason, NRIs tend to send money more to bank accounts," said Shetty.
He said more money is also being remitted to India since Christmas and New Year are round the corner. "Due to these multiple factors, we expect the remittances to go up by six to eight per cent," said Shetty.
Adeeb Ahamed, CEO of Lulu Exchange, said there has been marked interest from expats in sending money home with better rates. "With the rupee hovering around the lowest level for quite some time and looking at reports and expert views, remitters might be waiting to make use of the new low." He said the rupee would test new low in due course consequent to the weakness in the stock market and prevailing slide in major currencies.
"The demand for goods and services in major sectors has also taken a hit due to demonetisation. Taking all these factors into consideration we feel that a new low of around 25-30 paisa below the earlier low of 68.86 against the US dollar is possible."
He said currencies and markets are moving on the strong indication from the US Fed on hiking their rate. "Most of the major currencies including the euro, Canadian dollar, Swiss franc and Singapore dollar are at the lowest level in medium term. The Asian currencies have taken a greater hit and slid substantially, with some of them at their lowest level since 2008."
Analysts said the rupee's previous record low came in 2013 after the Fed's signal to end its unprecedented bond purchases spurred an exodus from emerging markets like India. Its slide this year has tripped fewer alarms as Asia's third-largest economy has since been overhauled, with policy makers succeeding in narrowing the current-account deficit, slowing inflation and building a war chest of foreign-exchange reserves.
"The rupee's drop to a record low is much less worrisome this time as it is largely because of the dollar's strength. Once the global uncertainties disappear, investors will return to India much faster," a currency expert said.
The Indian currency has fallen more than three per cent since Donald Trump's surprise win on November 8.
The rupee had been strong for almost a year and many thought it wouldn't witness such a major fall but its slide has shocked many traders and created panic in the market, another forex expert said.
The latest sell-off coincides with the dramatic move withdraw from circulation the two largest denomination notes in a bid to tackle corruption and tax evasion. The move to scrap 1,000 and 500 rupee notes left around 85 per cent of bills worthless and sparked long queues outside banks as worried consumers tried to exchange their old notes for new ones. The uncertainty caused by the decision has also led to huge outflows of foreign capital from the economy as overseas investors opt to put their money elsewhere.
On Thursday, the S&P BSE Sensex index of Indian shares slid 0.7 per cent, halting a two-day gain. Foreign holdings of Indian government and corporate bonds have dropped by 97.2 billion rupees ($1.4 billion) in November, set for the biggest decline since April 2014, National Securities Depository Ltd data compiled by Bloomberg show. Overseas investors have withdrawn a net $1.7 billion from Indian stocks.
- issacjohn@khaleejtimes.com

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