Remittances: Will Indian rupee drop further from current low of 22.66 to UAE dirham?

Dubai: The Indian rupee remains stuck to its lowest level of 22.66 to the dirham despite expectations that it could drop further against the dollar after the outbreak of hostilities between Israel and Hamas on Saturday.

In fact, the ‘dollar index’ had firmed up just a bit, but that was not enough to bring about a further drop to the rupee’s status. UAE’s expat Indians continue to enjoy the lowest rupee-to-dirham rates ever, with the official exchange rates ranging between 22.60-22.65 between October 1 to now.

The INR-AED has been stuck at or close to these lows since mid-September. “But the Israel-Hamas conflict can still change everything, especially if India has to pay a higher price for its oil imports and thus straining the country’s dollar reserves,” said an FX analyst. “Then, we could see the rupee slip to 22.68-22.73 levels (or 83.32-83.48 in rupee-to-US dollar terms).” (India’s dollar holdings were $598 billion in August.)

For NRIs, a remittance plus

Whatever be the case, for expat Indians, current levels are a definite plus. Even given the fact that the rupee has been relatively stable through the year compared to the 11 per cent plus decline in 2022.

“The Reserve Bank of India has been using its FX reserves to prevent the rupee from falling too much amid a strong dollar and relatively high oil prices,” said Bal Krishen, Chairman CEO of Dubai-based Century Financial.

“The Indian rupee lost less than 1 per cent of its value this year, while most other currencies in the emerging markets have suffered from the rise in US interest rates to their highest levels in years.

“Nevertheless, the near term prospect for the INR is bearish as the US Fed continues its policy of higher for longer stance on rates. Even though the Indian economy is a relative outperformer and fundamentals are solid, the hawkish bias (on rates) of world’s major central banks is likely to pressure emerging market currencies like the rupee.”

More factors in play

Krishnan Ramachandran is CEO of Barjeel Geojit Financial Services in Dubai. He reckons apart from more US rate hikes, other factors will weigh on the INR's future. "These include prospects of higher crude oil prices, higher yields on US Treasury, and above all, the prevailing geopolitical situation particularly in the Middle East," he said.

As for right now, the rupee-to-dirham level is weighed heavily in favour of expat Indians in the UAE and Gulf. Remittance levels picked up significantly since the first week of September, with currency exchange houses confirming high traffic over the last weekend.

And they are expecting more of the same in the coming weeks - "Chances of a drastic drop in INR value seem like a stretch," said Neelesh Gopalan, senior FX analyst at a Dubai-based fintech.