Indian expats in UAE can cash in on rupee

With the Indian rupee slumping to its worst ever exchange rate against the US dollar (55.0455, as of 7am UAE time, Tuesday) - and, therefore, the UAE dirham (14.98) and other dollar-pegged Gulf currencies - Indian expats in the region have the proverbial once-in-a-lifetime opportunity to make the most of the favourable rate. While the obvious way non-resident Indians (NRIs) can benefit from the current rate is to maximise remittances to India, Emirates 24|7 asked a financial expert to outline some of the other effective ways in which Indian expats can derive the most bang for their buck. R. Raghu, Senior Vice-President-Research at Kuwait Financial Centre (Markaz), says one simple way of leveraging the current exchange rate will be to "convert dollar-denominated investments to rupee". While that will mean that investors will have the opportunity to earn the maximum rupees against their fixed dollars, it will also lead to better interest rates as Indian banks are offering upwards of 9 per cent per annum on fixed deposits while local banks in the UAE are offering around 2 per cent or so per annum. Not surprisingly, then, Raghu recommends that Indian expats "take advantage of the high interest rates on NRE fixed deposits." The flexibility of NRE fixed deposits means that, once the tenure of the deposit expires, NRIs will still be able to get the money back into the source country, in the source country's currency. So, if an Indian expat in the UAE deposits, say, Dh100,000 in an NRE a/c today, the current exchange rate (approximately Rs14.80 = Dh1) will afford him to remit Rs1,480,000 to his or her India-based account. Assuming a fixed deposit tenure of 1 year, for which Indian banks are offering an interest rate of 9.25 per cent, that amount will grow to Rs1,616,900 in 12 months or so. Remitting the currency back at the same exchange rate will mean a return of Dh109,250, which will be much more than what the amount would have appreciated to in a local UAE bank at current interest rate offers. However, there are two things to keep in mind here. One, if the exchange rate in a year from now has improved in the rupee's favour, then the Indian expats could earn an even better windfall from such a transaction. However, if the rupee depreciates further, then s/he may lose out on the more favourable rate, and end up remitting back a lower amount. "Do not try to time the peak in currency. It is nearly impossible," Raghu advises. On the other hand, the exchange rates that banks offer to remit money back into the source country (UAE, in this case) isn't very healthy, and expats may lose out at least a part of their interest earned during the fixed tenure. So it is best to check both the rates - while remitting dirhams to India, and while converting rupees back into UAE dirhams - before making any such investment. At the end of the day, Raghu maintains that India's weak fundamentals could lead to capital erosion. "Beware of the inflation differential between India and US/UAE. The rupee is not weakening without a reason," he concludes.