The Indian rupee continues to be on its losing streak, hitting new-record lows every day, treading dangerously close to the 96 mark against the US Dollar. The currency hit its record low of 95.95 per dollar in today’s trade before trimming some losses and closing at 95.76 per dollar level.
Elevated crude prices, alongside bulk selling by foreign investors from domestic markets continues to add pressure on the currency. However, Bloomberg reported Indian Government is considering reducing taxed paid by foreign investors on government bonds in order to attract dollar inflows.
The policy measure has been recommended by RBI, and is being considered by Finance Ministry, Reuters reported citing its sources.
So far this year the currency has fallen by over 6%, while it has declined by more than 1% just this week. With no signs of crucial progress in the US-Iran standoff, the chokepoint- Strait of Hormuz remains largely, adding to the pressure on the Indian rupee, as the country imports more than 80% of its energy requirements from the Middle East.
Gold import duty hikes add pressure on currency
On May 13, the Indian government implemented a duty hike on import of precious metals, raising import tariffs on gold and silver to 15% from 6%, following which heavy investor selling was witnessed in the bullion markets. MCX Gold and Silver futures both hit their upper circuit in yesterday’s trade.
A rise in gold prices weighs negatively on the currency as it adds pressure on the country’s current account deficit, and India is a net gold importer.
“The timing is no coincidence. As tensions in West Asia continue to keep energy markets nervous, India’s import bill has ballooned sharply,” said Amit Pabari, Managing Director at CR Forex Advisors.
Crude prices continue to trade at elevated levels
Supply disruptions via the Hormuz passage continue to keep oil prices at elevated levels, with oil trading over the $100 per barrel level. High oil prices add to the downside for the Indian rupee, as it triggers dollar outflow, and India is a net oil importer.
Brent crude was quoted near the $106 per barrel level, while the US benchmark, West Texas Intermediate, was trading at the $101 per barrel mark.
Additionally, experts widely anticipate a rise in local oil prices citing it necessary to control the country’s ever-widening fiscal deficit. “The Indian Government also needs to raise Petrol and Diesel prices to prevent oil companies from bleeding and ensure the Fiscal deficit is in control,” said Anil Kumar Bhansali, head of treasury at Finrex Advisors.
FPI outflow remains to limit the scope for upside
So far this year, foreign investors have withdrawn more than $22 billion from domestic markets, surpassing their last year’s outflow of $18.9 billion. As per NSDL data, FIIs sold equities worth $19 billion following escalations in the West Asia conflict.
According to NSE data for May 13, foreign investors were net sellers of domestic equities worth Rs 4,520 crore. This high withdrawal has stoked inflationary concerns as FIIs venture into other markets like South Korea and Taiwan following their AI boom.
Outlook for Rupee
“Technically, the 94.50–94.80 zone is expected to act as a strong support area for USDINR, while 95.80–96.00 remains a crucial resistance region,” Pabari noted.
He added that 96 against the dollar is a psychological level for the currency markets, and the USD INR pair may face strong resistance near these levels and might not break above it immediately unless supported by fresh global triggers or panic-driven dollar demand.
