The Indian Rupee hit a near yearlong low on June 1, falling to its lowest observed level against the dollar in 11 months earlier this week. U.A.E.-based news source Gulf News said the currency dropped from 54.50 to 56.50 per U.S. dollar, due in part to the latter currency’s strong inflows.
The rupee could further depreciate in the coming days or weeks, Abheek Barua, an economist for HDFC Bank told the report. Baura said the momentum of “pro-dollar trade” may cause the exchange rate to fall to 57 rupees per U.S. dollar near-term.
“It is worth pointing out that such a sharp move is unlikely to have been sustained for so long without genuine dollar demand,” Baura said in a statement. “We suspect that this has come in the form of an unexpected pick up in gold imports that appear to have gathered steam amidst falling global gold prices since April.”
According to Gulf News, this development could have far-reaching implications on Indians living both domestically and internationally and reverse recent trends regarding the flow of currency in and out of the country.
Stronger Dollar Likely To Spur Remittance
The media outlet spoke to Lulu Exchange Centre’s Adeeb Ahamed, who serves as chief executive at the money transaction service. Ahamed said the cheaper rupee will be a boon for non-resident Indians who remit money into India regularly.
“Now they get more value for the same dollar amount or any other currency for that matter,” he told Gulf News. “At its lowest in the past eight months or so, it brings a smile to all the Indian expatriates across the globe.”
By comparison, it seems that a more inexpensive rupee has not detracted from remittance outflows either, the Times of Oman reported. This news outlet spoke to Tonny George Alexander, country head of UAE Exchange to confirm this trend.
“Those people who have to send money are doing so anyway,” Alexander stated.
Gulf News noted that total remittance activity has increased 10 percent over the last few weeks, with most of the activity coming from individuals in middle- to high-income groups.
Why The Rupee Is Falling
According to Ahamed, the main reason the rupee is dropping lies with the strength of the U.S. dollar index. The U.S. Dollar Index recently hit a three-year high amid growing uncertainty regarding the euro and traditionally stable gold.
Ahamed told the source that he believes that the expected end to the Federal Reserve’s controversial quantitative easing program will improve attitudes toward the dollar. He credited the record-setting performance of U.S. equities and improvements in the job market as potential reasons the U.S. government may be less inclined to pursue the policy going forward.
The Rupee’s Economic Outlook
For India, Gulf News says the falling rupee presents some drawbacks. The most important is that oil will now be more expensive for the country to import. The country is also a large market for other pricey imports such as coal and gold.
Sudhir Kumar Shetty, Chief Operating Officer of UAE Exchange Centre’s Global Operations, said investors are likely to remain hesitant despite the drop of India’s currency against the dollar. He suggested some investors may wait until the country’s elections are over before parting with capital, a trend he said could keep the rupee under pressure.
Still some want to know whether the rupee will fall further, or if this represents the bottom for the currency.
“Rupee will strengthen in the medium term, because we see the real green shoots in the Indian economy and the inflation being teamed by the Reserve Bank of India, so it is a good time to send money back home,” Ahamed said.
For more insights into the report, read the complete story from Gulf News here.
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