MUMBAI (Reuters) – On Tuesday, the Indian rupee tumbled to record lows as the government’s decision to increase tax rates on capital gains from equity investments and equity derivative trades dampened market sentiment.
The rupee closed marginally lower against the U.S. dollar at 83.6875, marking its weakest ever closing, after hitting an all-time low of 83.7150 earlier in the trading session.
Intervention from the Reserve Bank of India (RBI) likely mitigated further depreciation of the currency. According to traders, the central bank probably sold dollars around the 83.70-83.72 levels through state-run banks.
India’s primary equity indices, the BSE Sensex and Nifty 50, also closed slightly lower, having initially dropped by more than 1% during the day.
Despite the rupee’s “knee-jerk” reaction to the decline in equity markets, the RBI is expected to prevent significant volatility, said a trader at a foreign bank.
Dilip Parmar, a foreign exchange research analyst at HDFC Securities, forecasts a gradual depreciation of the rupee, expecting it to trade within the 83.57-83.77 range for the remainder of the week.
India’s budget for the fiscal year 2024-25 has achieved a balance between increased spending on job creation and rural development, while also lowering the fiscal deficit target.
The government has revised its fiscal deficit target down to 4.9% of gross domestic product, an improvement from the 5.1% goal set in February’s interim budget. Additionally, it has slightly reduced its gross market borrowing to 14.01 trillion rupees.
On Tuesday, most Asian currencies edged higher, while the dollar index saw a modest increase, reaching 104.3.