The Indian rupee continued its downward slide against the US dollar on Wednesday, touching its weakest-ever level of 95.73 per dollar during intra-day trade. The fall came despite a brief recovery in early trading, as investors remained concerned over strong dollar demand and global economic pressure.
In the opening session on Wednesday, the rupee had recovered by 16 paise to reach 95.52 against the American currency. Market participants expected that higher import duties and restrictions on imports would reduce demand for the US dollar. However, the domestic currency later lost momentum and weakened sharply in afternoon trade.
The Government of India recently increased the import duty and cess on gold and silver from 6 percent to 15 percent. The move was aimed at discouraging overseas purchases of precious metals and reducing pressure on the country’s foreign exchange reserves.
Analysts believe the higher duties may lower demand for imported gold in India, which is currently the world’s second-largest consumer of precious metals. At the same time, the government is trying to reduce the impact of heavy imports on the current account deficit (CAD).
On Tuesday, the rupee had already fallen by 40 paise to close at a then-record low of 95.68 against the US dollar. Currency traders said the increase in gold import duty could reduce domestic demand for the yellow metal in the coming months.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said the government’s move could help in controlling the current account deficit and provide some support to the rupee.
Prime Minister Narendra Modi had also appealed to citizens on Sunday to avoid buying gold for one year in order to help conserve the country’s foreign exchange reserves. India imports a large share of its precious metal requirements because domestic production remains very limited.
Meanwhile, the dollar index, which measures the strength of the US dollar against a basket of six major currencies, was trading 0.01 percent higher at 98.30. The stronger dollar continued to affect investor sentiment across emerging markets, including India.
Global crude oil prices also remained a major concern for the Indian currency. Brent crude futures were trading 1.12 percent lower at 106.56 US dollars per barrel, but elevated oil prices overall continued to keep pressure on India’s import bill.
On the domestic macroeconomic front, government data released on Tuesday showed that retail inflation in April rose to 3.48 percent. The increase was mainly driven by higher prices of gold and silver jewellery as well as some kitchen essentials.
The Consumer Price Index (CPI)-based inflation rate, with 2024 as the base year, had stood at 3.40 percent in March, 3.21 percent in February, and 2.74 percent in January. Economists are closely watching inflation trends and currency movements as both remain important for India’s broader economic outlook.
The sharp fall in the rupee has once again highlighted the challenges facing the Indian economy, especially amid a strong US dollar, volatile commodity prices, and pressure on foreign exchange reserves.
