The Indian rupee hit a fresh intraday low of 95.96 per dollar on Thursday amid aggressive dollar demand from importers and the maturity of offshore non-deliverable forward (NDF) positions, according to reports from Business Standard. The currency later recovered sharply to around 95.58 after reports emerged that the government was considering a reduction in taxes on foreign investors investing in Indian bonds. The rupee eventually settled at another fresh closing low of 95.76 per dollar, against the previous close of 95.71 per dollar. The latest data shows the dollar index climbed to 99.06 Friday morning from Thursday's close of 98.82, adding further pressure on emerging market currencies including the rupee.
The gains in the rupee proved short-lived after data showed India's wholesale price inflation surged to 8.30 per cent in April, sharply above market expectations of around 4.4 per cent, as reported by Business Standard. According to Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, the rupee fell from 95.58 to 95.75 levels almost immediately after the inflation data release. News agency Bloomberg reported that on the recommendation of the central bank, the Centre is considering cutting taxes paid by foreign investors on bonds, aimed at aligning policies with global norms and attracting inflows. A Bloomberg report specifically stated the government is considering cutting capital gains tax on foreign investments in Indian sovereign bonds from 20 percent to 3-5 percent.
Madan Sabnavis, chief economist at Bank of Baroda, described the inflation print as the first sign of the impact of war on the Indian economy, according to Business Standard reports. He noted that this is a direct result of global developments that have manifested on the oil front. Sabnavis added that while WPI inflation is not a target for MPC, these prices also get transmitted to the CPI component through higher input costs with a lag.
Dealers reported that the RBI intervened by selling dollars near the 95.96 per dollar level, as noted by Business Standard. The benchmark 10-year government bond yield softened by 3 basis points to 7.02 per cent on reports of the possibility of fresh foreign inflows into the debt market if tax norms are eased for overseas investors. A dealer at a primary dealership indicated that the market is now looking at a rate hike, with yields not expected to soften significantly from current levels.
The rupee has remained under pressure in recent sessions amid persistent strength in the dollar index, elevated crude oil prices due to tensions in West Asia, and sustained foreign portfolio outflows from domestic equities, according to Business Standard. Market participants said intraday volatility has risen significantly, offering opportunities to both importers and exporters to hedge positions. The currency has faced sustained pressure from multiple factors including global economic uncertainties and domestic economic developments.
