Mumbai: The Indian rupee came off near three-month highs to end lower on Tuesday after gains from the government’s move to raise the import tax on gold were erased by dollar demand from state-run banks and weak equities.
The government, late on Monday, raised the import duty on gold by 2 percentage points to 6% in a bid to curb purchases and rein in the country’s bloated current account deficit.
Gold-related dollar demand by importers constitutes an important source of greenback demand in the foreign exchange market, which dealers estimate at around $150-$170 million on a daily basis.
Nomura said the move may help in part to lower the current account deficit to 4.3% of gross domestic product in FY14 from an estimated 4.9% in the current fiscal year.
The current account and fiscal deficits have been a drag on the rupee and been a major worry for foreign investors.
“We need portfolio capital flows in line with easing of the trade deficit for the rupee to appreciate,” said Rajesh Cheruvu, chief investment officer, India-private banking at RBS. He expects the rupee to trade in a 53-55 range and only see a meaningful rise in the December quarter, aided by a growth recovery.
The Indian government recently allowed refiners to raise diesel prices in small measures, adding to the recent steps taken to assuage foreign investor sentiment and rating agencies.
Finance minister P. Chidambaram met investors in Hong Kong on Tuesday as part of a four-city tour to boost capital inflows.
The partially convertible rupee closed at 53.81/82 per dollar, weaker than its 53.765/775 close on Monday. It rose to 53.3750 earlier in the session, its highest level since 24 October.
Indian shares snapped a three-day winning streak on Tuesday after Hindustan Unilever Ltd earnings disappointed on volume growth, ending 2.88% lower.
In the offshore non-deliverable forwards, the one-month contract was at 54.04, while the three-month was at 54.60.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 53.7525 with a total traded volume of $7.7 billion. Reuters