Dubai: Indian expats in the UAE have started earning 21 dirhams for the first time ever. This comes after the rupee slipped past 21 early on Monday (May 9) after closing last Friday at 20.95 in the interbank currency area.
“The Indian currency is getting its signals from the stock markets – and the signs are all negative,” said an official at a foreign exchange house. “On the remittance side, we could see heavy actions, especially from corporate clients. There could also be remittances from Indian expats – but many had already sent their monthly payments earlier in the month when the rupee was around 20.80.”
So far, there is no indication that India’s central bank, RBI, is intervening in the market, said a Mumbai-based FX analyst. Indian stock markets are deep in the red at the start of the week, with the benchmark Sensex slipping 677 points (as of 9:45 a.m. IST).
According to Nagesh Prabhu, deputy managing director of LuLu International Exchange, “the rupee was expected to test a new low as it tested on Friday itself. Today it tested 77.52 against the USD, and we expect the rupiah to decline further due to geopolitical tensions and rising oil prices. We think it could get closer to the 78 mark in the coming days.” (In terms of dirhams, the rupiah tested 21.10 and could test 21.20 in the next few days.)
While the Indian economy has shown signs of growth and recovery across the board – despite high input and labor costs and continued supply chain disruptions – inflationary pressures continue to mount. be felt as they are expected to be around 7.5%, well beyond the central bank’s tolerance band.
– Mitul Shah, Head of Research at Reliance Securities
Strong cash outflow
Foreign funds have withdrawn $17.7 billion from Indian stocks this year, the highest on record, as the prospect of aggressive tightening by global central banks rattled markets, according to Bloomberg. The currency was also buffeted by other headwinds, including a growing current account deficit and a surge in global crude prices. Even the Reserve Bank of India’s off-cycle rate hike last week was unable to stem the Rupee’s decline.
“The RBI’s recognition of the urgent need in policy normalization is a source of support,” BNP Paribas strategists Siddharth Mathur and Chidu Narayanan wrote in a note. “However, as equity flows can dominate interest rate sensitive flows, there is a high downside risk for the INR due to a deterioration in equity market sentiment following a tightening. national financial conditions quickly.”
USD/INR traded at all-time highs around 77.255 today and is down around 1.80% since the RBI (0.40% rate increase) last week. This leaves the RBI in a bit of a bind, and it’s a problem others in Asia will feel sooner rather than later.
– Jeffrey Halley, principal analyst at exchange firm Oanda
RBI steps in
India’s central bank is intervening in all foreign exchange markets and will continue to do so to protect the rupee which hit a record high on Monday, a person familiar with the matter said.
The Reserve Bank of India sees its foreign currency reserves of around $600 billion as a formidable stockpile which it will use against speculators, the person said, asking not to be identified as the deliberations are not public. The RBI is seeking an orderly writedown, the person said.
“RBI’s interventions were modest and sporadic today,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors. The central bank has sufficient reserves, it could also sell another $50 billion, but it may prefer to keep those reserves for bad times, he said.
The sharp drop in the rupee is unfounded as Indian exports are robust and growth recovery is on track, the person said. This gives the RBI confidence that the levels seen before the latest drop are in line with fundamentals.
The RBI intervened in the spot, futures and non-deliverable futures market on Monday, the person said. The RBI sees pressure on the rupiah from a weaker yuan and stronger dollar, rather than domestic reasons, the person said.
With contributions from Bloomberg