Could Gulf Remittances Increase After Indian Rupee Hits Downward Spiral?

The Indian rupee hit a downward spiral against the US dollar, losing about 50 paise against the greenback by Tuesday morning trading hours, raising hopes of an increase in NRI (non-resident Indian) remittances to the country.

NRI remittances to India, especially from the Gulf region, see a spurt whenever rupee value plunges against the US dollar, banking officials and market analysts said.

Between Monday and Tuesday, rupee exchange value was depreciated by about 0.74 percent to 73.64 from Friday's closing rate of 73.14 against the US dollar.

“The current weakness in rupee is due to a combination of factors such as rising tension on the India-China border, dollar index regaining 93 level and traders rushing for profit booking,” Ajay Kedia, managing director of Kedia Commtrade and Research, told Arabian Business.

“Rupee could further depreciate to 74.20 (against the US dollar) in the short-run,” Kedia said.

Kedia, however, said the current weakness in the Indian currency may not last for long and rupee could make a recovery to 72.20-71.40 in a month’s time.

“Despite the large-scale reverse migration from the Gulf region in the wake of the Covid pandemic-induced job losses, the flow of NRI remittances from the region during April-June period continued to be strong because of the plunge in rupee value to 75-76 against the US dollar,” a senior official with the Kerala-based South Indian Bank, who wished not to be identified, said.

NRIs take advantage of low rupee value to remit larger amounts back home to take advantage for purposes such as investments in properties or meeting expenditures such as paying for children’s tuition fees or buying high value items.

Forex market traders said the US dollar index rose on Monday against the pound sterling and the euro as Brexit talks plunged into a crisis following Britain’s threat to override its European Union divorce deal.

Last week India announced the worst contraction in its quarterly gross domestic production figures at 23.9 percent - the lowest in 24 years.

“The GDP announced was in line with market expectations considering the economic disruption caused by the virus and its subsequent lockdowns," said Vaqarjaved Khan, a Research Analyst, Angel Broking.

ICICI Direct, a provider of stock trading and NRI services, however, said in a note that the overall trend remains bearish for the US dollar as near zero interest rates for the longer term in the US will keep pressure on the INR/$ pair.

The dollar-rupee September contract on the Indian bourse NSE (National Stock Exchange) was at 73.61 in the last session.