Festival season and weakening currency to push up remittances

MUSCAT, AUG 17

With Indian Rupee depreciating to all–time low to Rs215.500 against RO1, expatriates from this Asian country is finding it the best time to make remittances as festival season has begun back home and money exchanges in the country heading a hey-day.

The Indian rupee (INR) has depreciated over 1.2per cent from its late-July high to a five-month low against the dollar. In doing so, it declined past 83 per dollar for the first time in nearly ten months! A stronger greenback, rising US treasury yields, and a weaker Chinese yuan contributed to the rupee’s descent. Historically, a slump in the rupee relative to the USD and AED is inadvertently followed by a surge in remittances to India by the NRI community, according to Vijay Valecha, Chief Investment Officer, Century Financial.

“This is because a weaker rupee allows NRIs to send more money to India while spending the same amount in their host nations,” he added.

The Indian rupee is likely to remain under pressure in the near-term due to several reasons. For starters, even though market participants are broadly expecting interest rates to have nearly peaked in the US, the “sell-the-dollar” theme will not automatically lend support to the Indian rupee. Since last autumn, the currency appears to have found equilibrium around 82 per dollar – a level that is consistent with real-effective exchange rate.

Avinash Kumar, General manager, Al Jadeed Exchange says that the dollar is gaining strength and currencies of most of the Asian countries inadvertently losing their strength and this is the right to time to send money home.

“This is the time to send money home as rupee is losing value and one rial is exchanged for Rs 215.500 yeliding value for their money. For a speculative person, there is still room for further weakening,” adds Avinash.

Remittances account for around 3per cent of Indian GDP and are the second largest source of external financing following service exports. They also serve as a financial cushion in the event India’s trade deficit widens. According to a World Bank report, India received a substantial $89.4 billion in remittances in 2021, elevating its position as a top recipient globally. This figure rose to $100 billion in 2022, marking a YoY growth of 12per cent. Recently, the U.S. overtook the UAE as the top destination for remittances.