The Indian rupee fell through a key psychological barrier in forex trade today, slumping below Rs17 against the UAE dirham and below Rs63 against the US dollar.
Beginning the week at Rs16.78 against the UAE dirham, the rupee quickly breached the Rs17 level and plunged to Rs17.266 vs. Dh1 at 5pm UAE time (13.00 GMT), making a fresh lifetime low.
The continuously declining rupee may be a symptom of a weak Indian economy, but it has brought much cheer to the expat Indian community in the UAE and across the world as they receive more rupees per dirham, dollar or dinar at the forex counters while remitting money home.
The beleaguered Indian currency is now down more than 18 per cent in less than four months since the beginning of May 2013, when it went for Rs14.61 against Dh1 on May 2, 2013, providing expat Indians further reason to remit record sums home and also evaluate fresh investment opportunities in their home market, especially real estate.
With a decline of 15.38 per cent since the beginning of the year, the rupee was today officially crowned the worst performing Asian currency, falling past the Australian dollar (down 13.57 per cent year-to-date) and the Japanese yen (down 12.93 per cent YTD).
The rupee is now in competition to become the world’s worst performing currency this year, with only the Brazilian real (down 16.64 per cent YTD) and the South African rand (down 20.30 per cent YTD) faring worse than the Indian rupee.
With a market-determined exchange rate, the rupee has continued its downward slide despite the Indian government unveiling a spate of measures to prop up the currency. India’s central bank, the Reserve bank of India (RBI) tries to keep a lid on exchange rate movements by actively trading in the dollar-rupee currency market to impact effective exchange rates.
In the past, this helped steady the currency, with the rupee trading in a relatively stable band of Rs45 to Rs55 against the US dollar between September 2008 and mid-May 2013, barring a few breaches. However, since mid-May 2013, the rupee has witnessed a sharp decline, plunging to Rs63.419 against $1 this evening, bursting any illusions that the RBI has been able to maintain a ‘managed float’ on the currency.
In 1996, a couple of years before India took concrete steps to move towards full capital account convertibility, the Indian rupee’s exchange rate was Rs35.44 against $1, and even about six years ago, in 2007, the exchange rate averaged Rs39.5 vs. $1.
From there, the rupee has declined a massive 58 per cent, with not many analysts hopeful of a reasonable recovery in the near future.
The rupee’s rout continues even as the RBI and the Indian finance ministry have taken stringent measures in the past few months like raising gold import duties, hiking fuel prices and restricting foreign investment by Indian corporates and residents to plug a ballooning fiscal deficit.
However, the measures taken to tighten capital outflows and curb gold imports seem to be only spooking foreign investors in the country, which has led to a decline in the equity markets and the BSE Sensex has declined almost 10 per cent in less than a month, from 20,302 points on July 23, 2013, to 18,307 points at closing today.
Nevertheless, Indian expats who already remit record sums to the country (India is the world’s biggest recipient of remittances by its overseas nationals), will see this fresh decline as an opportunity to remit more dirhams, dollars and dinars back home. Perhaps that will help support the rupee.