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Remit or wait? Expats in UAE advised to keep close eye as currencies drop to record lows

Money exchange houses and bankers expect the coming years would be critical for the rupee

Published: Tue 7 Jan 2025, 8:53 PM

Updated: Wed 8 Jan 2025, 11:11 AM

By
Issac John

A currency exchange in Dubai. The depreciation of the South Asian currencies occurs amidst a broader context of a strengthening dollar index. — KT file

The relentless decline of South Asian currencies to record lows against the dollar poses significant challenges for remitters in the GCC to India and other Southeast Asian nations.

While the potential for further depreciation of Indian and Pakistani rupee as well as the Philippine peso looms, expatriates in the Gulf should wait for more favourable conditions before executing larger transactions, currency experts said.

They warn that as the dollar to Indian rupee exchange rate plunged to a record low of 86 or 23.5 against the dirham recently while forecast indicates a potential maximum rate of 89.138 in 2025 and an all-time high of 101.537 by 2029, remitters must remain vigilant and adaptable in their strategies.

Money exchange houses and bankers expect the coming years would be critical for the rupee, and call for proactive measures to navigate this volatile currency landscape successfully.

The depreciation of these currencies occurs amidst a broader context of a strengthening dollar index, which has surged by eight per cent in the past three months alone, from the end of September 2024. Currency experts estimate the Pakistani rupee to trade at 284.92 in 12 months time while the Philippine peso is estimated to trade at 59.98 in the same time frame.

At the end of 2022, the Indian rupee was valued at approximately 74.45 against the dollar. By the end of 2023, it had fallen to around 82.20, reflecting a depreciation of nearly 10 per cent. As of early 2025, the rupee has further weakened to 86, representing a cumulative decline of approximately 15 per cent since late 2022.

The implications of the rupee’s decline are not limited to India. Other Southeast Asian nations may also experience a similar impact on their currencies, particularly those with strong trade ties to India or those that rely on remittances from Indian nationals, says K V Shamsudheen, founder director, Barjeel Geojit Financial Services.

Deriding a trend among remitters to take bank loan or use other avenues such as credit card and private creditors for borrowing money to make the most out of the dip in currency value, Shamsudheen said it would be counter-productive as the interest they pay for local borrowing and the decline in value of their respective currencies would detrimental in the medium to long term period.

“Whenever these currencies depreciate considerably, lower-income workers remit money through the ‘hawala’ route after taking a loan from ‘hawaldars’ with very high interest. I used to advise them against the temptation to take loans at high interest of up to 10 per cent per month that would eventually lead them to a big debt trap,” said Shamsudheen.

Countries like Bangladesh, Nepal, and Sri Lanka, which also rely heavily on remittances, may see fluctuations in the volume of funds received as individuals adjust their transfer strategies.

Currency market analysts argue that as the US economy remains robust and interest rates stay elevated, the dollar is likely to maintain its strength against the rupee.

The strong performance of the dollar has been driven by robust economic data from the US, including rising interest rates, strong employment figures and optimism on president-elect Donald Trump’s administration. Higher interest rates in the US attract foreign investments, leading to increased demand for the dollar, they said.

India, the world’s fifth-largest economy and the top recipient of remittances in 2024, has been grappling with elevated inflation levels, which have eroded the purchasing power of the rupee. In 2024, India received an estimated $129.1 billion worth of remittances, the highest ever for a country in any year with a share of 14.3 per cent, the highest such share since the turn of the millennium for any country. China secured only 5.3 per cent of global remittances in 2024, its lowest share in at least two decades.

Since the Reserve Bank of India (RBI) is struggling to maintain interest rates in a way that could stabilise the currency, experts say instead of sending large amounts at once, remitters may choose to transfer smaller sums over time to minimise the impact of unfavourable exchange rates. Remitters should keep a close watch on market trends and economic indicators, waiting for signs of stabilisation or potential improvement in the rupee’s value before executing big-ticket transactions, they said.

They advise that remitters may explore financial instruments or services that allow them to lock in favourable exchange rates or hedge against further declines.