Rupee Hits Record Low Amid Dollar Demand, Recovers on Tax Cut Hopes
Rupee hits record low before paring losses on bond tax-cut hopes
Business Standard
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The Indian rupee fell to an intraday low of 95.96 per dollar due to high dollar demand and offshore position maturities but later recovered to 95.58 following news of potential tax cuts for foreign bond investors. It ultimately closed at 95.77, influenced by rising wholesale price inflation at 8.30%.
- 01The rupee hit a low of 95.96 per dollar before recovering.
- 02Recovery was prompted by news of possible tax cuts for foreign bond investors.
- 03Wholesale price inflation surged to 8.30%, raising concerns over imported price pressures.
- 04The Reserve Bank of India intervened by selling dollars to stabilize the rupee.
- 05The benchmark 10-year government bond yield softened by 3 basis points to 7.02%.
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On Thursday, the Indian rupee reached an intraday low of 95.96 per dollar amid strong dollar demand from importers and the maturity of offshore non-deliverable forward positions. However, it rebounded to around 95.58 after reports indicated that the Indian government was considering a reduction in taxes for foreign investors in Indian bonds, aimed at attracting foreign capital. Ultimately, the rupee closed at 95.77 per dollar, slightly lower than the previous close of 95.71. The recovery was short-lived as data revealed that India's wholesale price inflation surged to 8.30% in April, significantly higher than the anticipated 4.4%, raising concerns about imported inflation due to global developments, particularly in oil prices. The Reserve Bank of India reportedly intervened to stabilize the rupee by selling dollars at the peak level. The bond market reacted with the benchmark 10-year government bond yield dropping by 3 basis points to 7.02%, reflecting optimism about potential foreign inflows if tax norms are eased. Market volatility has increased, providing opportunities for importers and exporters to hedge their positions.
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The rise in wholesale price inflation may lead to increased costs for consumers and businesses, potentially affecting prices of goods and services.
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