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Thu 15 Sep 2011 05:46 PM

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Expat remittances to India rise on falling rupee

Money transfer companies report sharp increase in money transfers from UAE to India

Expat remittances to India rise on falling rupee
The UAE accounts for nearly 13 percent of the total remittance flow into India (Getty Images)

UAE-based money transfer companies have seen a sharp increase in remittances being sent to India as expatriates look to capitalise on the declining value of the rupee against the dirham.

A steady fall in the Indian rupee over the last two months has sparked a flurry of remittances from the dollar-pegged Gulf state as Indian expatriates look to take advantage of the fall.

“One thing that a lot of people are experiencing right now is not an increase in the number of remittances - although we have heard from different people that it is happening – but definitely the principle amount that people is sending is more because they will get more for their rupee,” Sobia Rahman, regional vice president for Western Union, Pakistan, Afghanistan and the Gulf, said.

London-based currency specialists First Rate FX said it had seen the number of transactions from either the UAE dirham or the US dollar into the Indian rupee increase 187 percent over the last 50 days.

“The majority of these transfers have been spot contracts, which means that the transaction is for the immediate delivery of funds. However, the number of forward contracts has increased by almost 50 percent, which shows that many people want to lock in the current rate of exchange for future transactions,” said Chris Canning, head market analyst at First Rate FX.

The Indian rupee was trading at 47.79/80 per dollar on Wednesday, the lowest in nearly two years amid concerns that Europe’s debt problems may snowball into a banking crisis roiled global markets.

The rupee’s fall was in line with other regional currencies after credit rating agency Moody’s downgrade of Societe Generale and Credit Agricole hit risk sensitive currencies across the board.

India’s chief economic advisor to the finance minister, Kaushik Basu, said on Wednesday that there is not much the government can do to stem the weakening of the rupee.

The UAE, home to 1.7 million Indian expatriates, accounts for nearly 13 percent of the total remittance flow into India. 

The rupee is expected to remain low in the short term but will increase before the end of the year, said Canning. “Whilst it is unlikely that the central bank would artificially support the rupee, it is expected that the currency may remain weak for a prolonged period,” he said.

“Eventually, however, rates are expected to fall. Increasing inflation throughout India has been putting pressure on the Reserve Bank of India to raise interest rates, and this would support the rupee against further declines. Realistic levels of exchange could reverse to sub-INR 47 per USD by the end of the year.”

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