Rising inflation concerns, crude prices and interest rates drag down Indian rupee

A plunge in rupee value will be good news for expat Indians as it gives them better bang for their buck as they send remittances to their home country. The Gulf -based expat Indians account for a major chunk of non-resident Indian (NRI) remittances to the South Asian country.

The rupee was trading at 73.35 against a dollar in the morning trading hours, lower than its closing rate of 73.27 on Monday.

“The rupee is faced with the triple whammy of rising inflation, worries on hardening of interest rates sooner than expected and climbing crude prices,” Ajay Kedia, managing director of Kedia Commtrade and Research, told Arabian Business.

“This can lead to the Indian currency falling to a low of 75 rupee against a dollar in a month’s time,” Kedia said.

Kedia said on the higher end, the rupee will have support at 72.20 against the greenback.

He said the continued foreign fund inflow into India through both foreign portfolio investments (FPIs) and foreign direct investment (FDI) have been supporting the rupee value in the recent weeks.

“The sudden surge in inflation, however, has raised worries about India’s central bank seriously looking at raising interest rates. The concerns on this front will affect the sentiments on rupee exchange value outlook in the short-term,” Kedia said.

Ajay Kedia, managing director of Kedia Commtrade and Research

Foreign currency market experts also pointed out the market getting increasingly anxious about this week’s US Federal Reserve’s meeting.

“The US Federal Reserve monetary policy meeting starting on Tuesday will be a major event to look out for the near and medium-term movement for rupee exchange value,” Himanshu Gupta, vice-president, Globe Capital Market, told Arabian Business.

“Though the Fed is widely expected to continue with its easy monetary policy, investors will be keenly watching to see if concerns about inflation will have any effect on its forecasts.

“Even a slight indication of an early start on the interest rate cycle can have a major impact on rupee value,” Gupta said.

Gupta said a reversal of the current interest rate cycle will impact major international currencies, and strengthening of the US currency could have an adverse bearing on the rupee value.

The US dollar index has remained above the 90 level for several weeks now.

Indian currency is predicted to tumble again in the near-term to touch 75 rupees against the US dollar

Price of Brent crude hovered around $73 per barrel on Monday.

According to banking circles, NRI remittances, especially from the Gulf countries, see a surge whenever the rupee enters a weak phase.

Remittances from the UAE to India slumped by 17 percent during 2020 as the impact of the Covid-19 pandemic forced thousands of expats to return home amid wide-scale job losses, according to a recent World Bank report.

The bank report, however, revealed that resilient flows from the US and other host countries helped the South Asian country to offset the fall from the inflow from the UAE, leading to just a 0.2 percent fall in its overall remittances last year.