USD/INR Through 79.00, Gold Import Tax Raised

Spot USD/INR has pushed through 79.00 in early trading today. We have stabilized around the 79.10 level. This is fresh record lows for the rupee, with the pair spending the last few sessions very close to the 79.00 handle.

• The pull back in Brent crude has seen little relief for INR. As we noted earlier in the week, pent up USD demand appears to be keeping USD/INR dips quite shallow. Still, INR is outperforming modestly on an intra-Asia basis.
• The Indian authorities are looking to address the trade imbalance. They raised the import tax on gold to 12.5% from 7.5%. Gold imports were at decade highs last year.
• At the same time the authorities stated it would raise taxes on exports of gasoline, diesel and jet fuel. Such exporters are also mandated to sell locally first. Hence the net impact on the trade position remains to be seen.
• Local equities are off by around 1%. Offshore investors continue to sell local shares, although the pace of outflows has slowed somewhat. Week to date outflows are $287mn. For June as a whole, we sit at -$6.3bn.