Weaker Indian rupee boosts UAE dirham: Food prices may drop by up to 15%
The UAE dirham has appreciated against the Indian rupee which makes imports from India cheaper thereby helping to control inflation according to experts and retail business owners.
The Indian rupee fell to a record low level of nearly 24 against the UAE dirham last month because the US dollar strengthened. Xe.com reports that South Asian currency trades have dropped from 22.5 to nearly 24 against the Emirati dirham during the previous twelve months.
The Indian rupee has depreciated according to Dr Dhananjay Datar who heads Al Adil Supermarkets and this will cause a reduction in food prices. The Al Adil Group expects Indian food and other commodities to be 15 percent cheaper because of the rupee's depreciation.
India holds a position as one of the United Arab Emirates' top trading partners while the bilateral trade value is expected to rise to $100 billion soon. The excess supply of shipping containers caused freight rates between India and the UAE to plummet dramatically according to Dr Jay.
Drop in inflation
According to Hani Abuagla, senior market analyst at XTB Mena, imports become less expensive for UAE when the dirham strengthens since their cost decreases against currencies that have lost value against it.
The UAE dirham's strength relative to the Indian rupee leads to cheaper imports for UAE businesses because they get more goods for the same amount of dirhams. The dirham maintains its strength compared to other currencies because it is pegged to the US Dollar which affects its performance against currencies like the rupee.
India’s trade gap with the UAE in oil and gold transactions creates stress on the rupee which leads to its depreciation against the Emirati currency. Abuagla explained that imports from India become less expensive for UAE businesses and similar situations with other countries occur.
A stronger dirham reduces import costs which helps control inflationary pressures especially for food and electronics.
The dirham’s fixed exchange rate to the US dollar combined with increasing housing prices keeps inflation vulnerable. The peg to the US dollar limits the UAE’s options for controlling inflation through its own monetary policy decisions.
A stronger dirham has potential to ease inflation but its effects are limited by various global and local economic elements.
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