More cheer for expat Indians: Rupee could soon slump to Rs16.75 vs Dh1

Recently, it seemed that the floor beneath the Indian rupee had given away – how else does one explain a plunge of more than 13 per cent in less than eight weeks? The Indian rupee famously fell to a new record low of Rs16.537 against the UAE dirham (Rs60.738 vs. $1) on Wednesday, June 26, 2013. Less than eight weeks ago, on May 2, 2013, the rupee traded at Rs14.616 against Dh1 (Rs53.685 vs. $1), implying it fell 13.13 per cent between May 2 and June 26. The beleaguered rupee has, indeed, ‘bounced back’ to Rs16.21 vs. Dh1 (Rs59.52 vs. $1) but the road ahead looks far from smooth for the Indian currency, with experts and currency analysts expecting a further decimation of the rupee. According to recent research published by HDFC Securities, the brokerage arm of HDFC Bank, the trend of a weakening rupee vis-à-vis the US dollar (and dollar-pegged currencies) is yet to show clear signs of reversal. “We would not be surprised if the pair (USD/INR) continues its uptrend and tests our immediate targets of 60.9-61.0 [against USD; Rs16.60 vs. Dh1],” HDFC Securities said in a currency update dated June 26, 2013, the same day when the rupee made its record low of Rs60.738 against the dollar. A more recent report from global banking giant Credit Suisse maintains that the rupee is on a continuous downward spiral, and is likely to weaken further. Credit Suisse says the rupee may touch Rs61.50 vs. $1 (Rs16.75 vs. Dh1) in next three months and Rs62 vs. $1 (Rs16.88 vs. Dh1) in the next 12 months. “The depreciation of the rupee means the chance of the RBI cutting interest rates at its next meeting on July 30 is virtually zero, and indeed there is probably a higher risk of rate hikes not cuts right now, given [RBI Governor D.] Subbarao’s hawkish nature,” Credit Suisse said in a research note. The rupee’s recent rebound is being pegged to the country hiking the price of fuel for the third time in June 2013, taking the price of petrol in India’s commercial capital Mumbai to Rs76.90 (Dh4.75) per litre. Analysts maintain that the fuel hike is a major factor that is helping buoy up the rupee from its record lows, as foreign investors regain faith in the Indian political machinery to take some tough decisions in the face of a ballooning current account deficit and a sagging economy. “Since last price change, the downward slide of rupee has continued and the exchange rate has deteriorated from Rs57.08 per dollar to Rs58.94 per dollar during the fortnight. "Further, international petrol prices have also increased from $113.84 per barrel to $115.29 per barrel since last price change. The combined impact of both these factors, predominantly of rupee depreciation, has warranted the increase in petrol prices by Rs1.82 per litre excluding VAT,” State-run Indian Oil Corporation said in a statement on Friday. In addition, what’s helping the rupee rebound in the short term is the fact that international institutions are reassessing their expectations of a tapered down US quantitative easing programme, and may be holding back from a further pullout from emerging market economies until such time as fresh and clear signals from the US Federal Reserve emerge. Emirates24/7