Weak Rupee Offers Remittance Window of Opportunity for Indian Expats in UAE
Dubai: The Indian rupee fell for the fourth day in a row against the UAE dirham on Friday with an intra-day low of 20.38.
The decline of the rupee against the dirham is a reflection of the decline of the Indian currency against the US dollar to which the currency of the United Arab Emirates is pegged.
The Indian rupee lost 19 paise on Friday to close at 74.74 against the greenback as the strength of the dollar and expectations of a further rise in crude oil prices weighed on investor sentiment.
Over the past week, the rupee has lost 55 paise. Going forward, the rupee is expected to remain under pressure due to rising crude prices and the relative strength of the dollar in the forex markets.
The crude weighs
India depends on imported crude for 80 percent of its needs, which means that domestic inflation is sensitive to changes in the price of global crude oil benchmarks. Increases in Brent oil prices are negatively impacting India’s terms of trade and, by extension, the strength of the rupee.
India’s foreign exchange reserves stood at $ 598 billion at the end of May 2021, the equivalent of 17 months of imports.
The current weakness of the rupee is largely related to the delay in the OPEC + decision on oil supply and the rise in the price of curde. Oil posted its sixth consecutive weekly gain, the longest winning streak since December, as the standoff between OPEC + ministers on production extended negotiations until Monday.
Oil jumped more than 10% last month as the summer driving season increased demand for U.S. crude and gasoline. OPEC and its allies have so far taken a phased approach to increasing supplies.
India, the world’s third-largest consumer of oil, is concerned about domestic price pressures, with the country expecting fuel consumption to return to pre-pandemic levels by the end of this year.
With the uncertainty over crude supplies, analysts expect the rupee’s range to be between 74.60 and 75.20 over the coming week.
The dollar index, which measures the strength of the greenback against a basket of six currencies, rose 0.05% to 92.63.
Although the flushing of crude prices is likely to worsen the terms of trade, India holding nearly $ 600 billion in foreign exchange reserves is likely to see central bank intervention in the coming week to keep the currency stable against a sharp drop.
Rising foreign exchange reserves have helped the rupee hold its own in recent months. However, supply and demand dynamics in forex markets could change once imports gain momentum when COVID-related restrictions relax. Moreover, the next massive government borrowing to cover COVID-related expenses, combined with a potential increase in dollar interest rates, could put the rupee under pressure in the second half of the year.
In view of the relatively weak economic fundamentals combined with a potential increase in demand for dollars in the coming months, the Indian rupee could face further downward pressure in the coming months.