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Dubai: The sharp decline of the Indian rupee by about five per cent in the past three weeks that came as a surprise relief to Indian expatriates in the Gulf is unlikely to last long, according to currency experts and UAE-based exchange houses.
The Indian rupee strengthened about 20 per cent against the dollar in the past two years, resulting in the earnings of Gulf expatriates shrinking in proportion.
Although the rupee's decline provided a golden opportunity for those waiting for better exchange rates, forex dealers said yesterday the rupee is likely to regain its lost ground in the days ahead.
"The decline happened because of a sudden surge in demand for the dollar due to record high oil prices. The rising demand was further fuelled by speculators who took positions in non-deliverable futures contracts. I don't expect the slide to last too long," said Sudhir Shetty, managing director of UAE Exchange Centre.
Last week, the rupee declined for the fourth consecutive week on concern near-record oil prices will boost the nation's import bill, widening its trade and current account deficits.
The currency declined as much as 0.5 per cent on Friday to a 13-month low as demand for dollars needed to pay for crude oil increased after the commodity climbed to an all-time high of $127 per barrel.
"The rupee's decline reflects concern high oil prices will increase the external deficit. But capital flows look normal and I think what we are witnessing is an aberration," said Shetty.
The rupee weakened 2.2 per cent to Rs42.5075 a dollar last week adding to its 2.3 per cent slide this month. The currency's 7.6 per cent decline this year is the third-worst performance among the 10 most-traded Asian currencies after the South Korean won and the Thai baht.
The rupee fell 8.1 per cent in the past six months as oil advanced 33 per cent, boosting the value of India's oil imports to a record $8.6 billion in March.
India's trade deficit widened to an all-time high of $25.4 billion in the three months through December. The current account shortfall, a measure of trade and investment flows, increased to $5.4 billion in the same quarter.
"There is widespread speculation that the government would ease external borrowings which could result in the rupee bouncing back," said the treasury head of a local bank.
According to current regulations Indian companies borrowing more than $20 million overseas cannot repatriate the money to India, while they need the central bank's permission to bring back funds up to $20 million.
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