Rupee Edges Higher After Government Raises Duties on Gold and Silver Imports

Rupee Opens Slightly Higher Against Dollar Amid Import Duties Hike and Elevated Brent Crude Prices

The Indian rupee opened two paise higher against the dollar on May 13, supported by the government's decision to hike import duties on gold and silver. Despite elevated Brent crude prices, which kept traders on edge, the rupee was trading at 95.61 against the dollar.

The rupee had ended the previous session at a record closing low of 95.63, having plunged to 95.74 during the May 12 session due to concerns over crude prices and the US-Iran war. However, the government's late-night decision to hike import duties on gold and silver to 15 percent from 6 percent helped to curb demand for these metals and ease pressure on the foreign exchange reserves.

The government imposed a 10 percent basic customs duty and a 5 percent Agriculture Infrastructure and Development Cess (AIDC) on imports of gold and silver, taking the effective import tax to 15 percent. This move came two days after Prime Minister Narendra Modi urged citizens to cut back gold purchases for a year.

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The hike in import duties is expected to bring down demand in the country, which is the world's second-largest consumer of precious metals. This, in turn, could help in curbing the current account deficit and support the rupee to some extent. Market participants continue to worry about Brent crude prices, which remain near $106 a barrel despite an overnight pause in the oil rally.

The US-Iran logjam has fuelled fears of prolonged supply-chain disruptions, with shipping through the Strait of Hormuz, a key energy route, largely blocked. For India, which meets around 85 percent of its energy needs through imports, higher oil prices can stoke inflation, widen the current account deficit, and slow growth.

India's foreign exchange reserves stood at $690.69 billion as of May 1, RBI data shows. Analysts at ANZ have warned that structurally weak external funding conditions mean even a small widening of the current account deficit will continue to put pressure on the INR and FX reserves.

Comparison of Brent Crude Prices

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Note: Brent crude prices remained near $106 a barrel despite an overnight pause in the oil rally.