The sharp appreciation of rupee against US dollar has hit the NRIs in the Gulf hard at a time when the skyrocketing cost of living has already slashed their savings.
DUBAI: The sharp appreciation of rupee against US dollar has hit the NRIs in the Gulf hard at a time when the skyrocketing cost of living has already slashed their savings.
The UAE currency Dirham is pegged to the US dollar which has depreciated heavily as currency markets have dumped dollar in favour of other stable currencies. The rupee has risen sharply against the dollar recently.
In many of the GCC states like UAE, Qatar and Bahrain the cost of living has shot up mainly with house rents doubling in the last two years. The construction boom, which has placed hundreds of freehold residential properties in the open market has not helped as they are
all high value offerings.
Last year, inflation rates in UAE hit a 19-year high of 9.3 per cent. A larger number of expatriates working in the country are losing a major share of their earnings to inflation and currency depreciation.
"The Indian rupee has gained more than 14 per cent against dirham from the beginning of the year. The exchange rate losses, combined with the domestic inflation in the UAE is wiping out more than one third of the earnings of Indian expatriates working in the UAE," Sudhir Shetty, General Manager of UAE Exchange Centre, told Gulf News.
European, British, Swiss and Canadian expatriates too have suffered heavily due to depreciation of dirham. The dirham fell 17 per cent against the euro from December 2005 to end of August 2007 and a 16 per cent against sterling.
With the US economic prospects appearing bleak, economists are anticipating more US rate cuts that could result in further decline of the dollar.
Serhan Cevik, an economist at Morgan Stanley, told Gulf News that the weaker dollar would worsen the already high inflationary pressures in the Gulf countries.
"Imported inflation is becoming a bigger threat, as currencies pegged to the dollar keep weakening," Cevik said.
The impact of exchange rate loss is heavy on those who have loans to pay and bills to settle in their home countries. Small and middle-income groups are more vulnerable to the decline of the dirham.
"With the exchange rates of dirham falling against their home currencies, salary earners who have fixed commitments such as mortgages, bank loans and college fees are forced to dip into their savings or borrow to send money home," said Shetty.
Despite the growing financial pressure on residents, the Central Bank insists that the UAE will stick to the peg. Economists and analysts said depegging or at least revaluing dirham is long overdue as the declining currency is hurting common man the most.
The sinking exchange rate of dollar is also seeping into the UAE's domestic prices through imports. More than 70 per cent of the UAE's
imports are from Europe, UK and Asia where currencies have appreciated against dollar.
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