Indian rupee touches 19.48 against UAE dirham

Indian rupee, UAE dirham, dollar, foreign exchange, interbank

The rupee opened at 71.48, registering a rise of 23 paise over its previous close of 71.71.

By Waheed Abbas

Published: Wed 21 Aug 2019, 11:52 AM

Last updated: Wed 21 Aug 2019, 11:00 PM

The rupee fell against the UAE dirham and the US dollar amidst uncertainty surrounding the Indian currency and could cross 20 against dirham again in the coming months due to concerns about funds outflow and slowdown in economy, analysts said.
 The rupee dropped to six-month low of 19.54 versus dirham or 71.71 against greenback on Tuesday, but made a brief recovery on Wednesday and rose 23 paise in the morning to 19.47 versus dirham or 71.48 against dollar.
 It has lost 4 per cent last month, making it the worst performer in Asia. Rupee hit all-time low of 20.24 on October 10, 2018. Ahead of elections in India, the rupee had strengthened to 18.66 against dirham on April 4.
 US bank JPMorgan Chase & Co. forecast that the Indian currency will hit 73/74 versus dollar (19.9/20.2 against dirham) in the coming months, mainly due to waning internal and external growth.
 Jonathan Cavenagh, head of foreign exchange strategy for emerging markets Asia at JPMorgan Chase, attributed weaker outlook for the Indian currency to slowdown in economic growth and said rupee is being overvalued in real effective exchange rate terms.
 "The weaker outlook for the rupee is linked to waning internal and external growth, it being overvalued in real effective exchange rate terms, and to an easing in the tailwind of falling U.S. real rates," Cavenagh said in a research note.
 Vijay Valecha, chief investment officer, Century Financial, stated that the Indian rupee woes are compounded by huge money outflows from Indian stock market, rise in crude oil prices since last December and weak domestic stock market sentiment owing to budget tax proposals.
 "As per a recent statistic, FII's alone have pulled out 240 billion Indian rupees. Consecutive four-week rally in US dollar-Indian rupee parity is unlikely to halt anytime soon as momentum seems to be strongly in favour of dollar. October 2018 high of 74.08 seen in US dollar caused dirham-rupee parity to spike to 20.21 levels. Going ahead, with current negative sentiment in Indian domestic markets, expectations are high for at least foreign portfolio investor (FPI) tax relief from Indian government. If there is no strong indication on the same, US dollar-Indian rupee parity is likely to run another leg higher and cause dirham-rupee parity to retest its high of 20+ levels," Valecha added.
 As per Real Effective Exchange Rate (Reer), the rupee is overvalued by around 1.25 per cent.
 He pointed out that rupee is heavily going to be impacted by several factors such as foreign institutional investor flows to Indian capital markets, government stimulus measures, RBI monetary policy trajectory, crude oil prices and Indian sovereign yields.
 The Indian economy, which is the fastest growing economy in the world, is also facing slowdown concern as former Reserve Bank of India governor Raghuram Rajan on Tuesday warned that the economic slowdown is "very worrisome" and called for taking a fresh look at how the GDP is calculated.
 Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services, said rupee has depreciated close to four per cent in the last month, primarily on account of weak macro-economic data, poor corporate performance and on account of fluctuations seen in the emerging/Asian currency markets.
 "I do not anticipate the currency to weaken further and at best expect it to depreciate up to 72.25 to the dollar (19.7 vs dirham) in the near term. The prevailing scenario of low oil prices and high gold prices should mitigate any steep fall in the currency in the coming months," he added.

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