Indians living in the UAE who plan to remit money home would be better off doing it now, as the rupee is expected to strengthen further imminently, experts have said.
The rupee strengthened from 88.87 to 87.69 against the dollar in recent days, as the Indian currency notched its longest stretch of gains against the greenback since June.
Over the coming three to six months, the USD/INR pair is expected to be within the range of 86.80-88.50, with a slight downward trend, according to experts.
Remittance activity in the UAE, which is largely driven by essential transfers, is expected to maintain steady overall transaction volumes in the weeks to come. However, the strengthening rupee might change the frequency and the timing of non-time-sensitive transfers, according to exchange houses.
“Stronger exchange rates do not discourage remittances; they simply change their timing,” said Hasan Al Fardan, chief executive of money transfer company Al Fardan Exchange.
“Salary-linked obligations such as family support, school fees, and EMIs [equal monthly instalments] continue as usual, while savings or investment transfers often pause briefly as customers wait for more clarity on the rate,” he said.
“We see this short-term adjustment pattern repeatedly around key market turning points.”
Rajiv Raipancholia, chief executive and managing director of Orient Exchange, concurred.
Exchange rate fluctuations do not usually change monthly remittance patterns, as customers may delay by a couple of days but not more because they still have to meet financial needs back home, he said.
Customers are rate-agnostic and they have several choices when it comes to exchange houses, as well as better rate options offered by some of the operators on online transactions. There is stiff competition and that also keeps pressure on the remittance rates exchange houses offer, he added.
Compelling reasons
Looking ahead, there are several factors that make the probability of the rupee strengthening further against the dollar more likely, analysts said.
The rupee climbed to a two-month high on Thursday, supported likely by inflows and the impact of the Reserve Bank of India's persistent dollar offers near the 88 level.
Importer hedging is also likely keeping the dollar/rupee pair locked in a narrow range.
The rupee rose to 87.635 per dollar, its highest since late August, before dipping back to near 87.70.
Earlier this year, when most Asian currencies were rallying, the rupee slumped 3 per cent. That movement reflected India’s susceptibility to trade tariffs and other US policies, such as higher H1B visa thresholds, accompanied by foreign investors pulling out of local equities at a swift pace.
The rupee's rally has enough impetus to support continuity in the short term, analysts say. The RBI has signalled a willingness to intervene in foreign currency markets to defend its unit, according to Vijay Valecha, chief investment officer at Dubai-based Century Financial.
The RBI has been pumping rupee liquidity into the system while selling US dollars through state-run banks. Increased foreign investor inflows into India, Asia's third-largest economy, is also supporting the domestic currency.
In the past week, foreign investors bought a net of more than $1 billion worth of Indian equities. This could increase further if the US-India trade deal goes through, which would, in turn, boost demand for rupee, he added.
“The latest projections suggest that India’s gross domestic product is likely to grow from 6.7 per cent to 6.9 per cent in the fiscal year 2026, which could enhance investor appetite for the rupee and rupee-denominated assets,” Mr Valecha said.
The rupee’s carry trade – a strategy where investors borrow money in a low-interest rate currency and invest in Indian rupee-denominated assets that offer higher returns – potential is also a supportive factor. Both in real and nominal terms, India’s RBI repo rate – the rate at which the RBI lends money to commercial banks for short-term needs – is at the top end of its Asian peers, he added.
“India’s real effective exchange rate – a metric of how the degree of undervaluation or overvaluation in the rupee relative to the inflation differentials among India’s prominent trading partners – has declined lately.”
Expected Fed rate cuts could eventually weigh on the dollar. Markets are pricing in two more quarter-point reductions by year-end.
Timing versus rate sensitivity
During Indian festive seasons such as Onam and Diwali, remittance volumes tend to rise as people send money home to support loved ones. During those periods, timing takes precedence over rate sensitivity, Mr Al Fardan said.
“However, during the current rebound, we have observed more rate alerts being set through our app and more same-day price checks at counters before customers complete their transfers,” he added.
Blue-collar workers usually remit soon after payday through the wage protection system cycle, where timing and consistency matter more than small currency movements. Their flows remain steady regardless of short-term fluctuations, Mr Al Fardan said.
The white-collar segment tends to be more sensitive to rates and fees. People in this group often send larger amounts, compare channels and may wait for a more favourable exchange rate before transferring additional savings, he added.
Hedging strategies
Mr Valecha said Indians living in the UAE can use hedging instruments to plan for large remittances, or for transactions such as purchasing property in the UAE, with unfavourable rupee movements being their main concern.
Most banks and exchange houses provide the forward contract as a primary method. This allows remitters to secure an exchange rate today for a transfer that will take place on a future date (generally within 12 months), he said.
“There is another option of using limit or target orders. With this, the bank or remittance service provider is instructed to do the transfer automatically when the exchange rate indicated as the target is reached,” Mr Valecha said.
“This method is good for expats who do not have an immediate requirement of the money and want to take the benefit of the market without doing the monitoring of rates all the time.”
For those who do frequent and sizeable transfers, a systematic remittance plan can be a natural hedge devised by sending smaller amounts at intervals, he said.
“This rupee-cost averaging strategy mitigates the impact of volatility, while at the same time reducing the risk of timing” Mr Valecha added.
