India’s Rupee Reverses Drop After Gold-Tax Increase; Bonds Fall

India’s rupee rose, reversing an earlier decline, after the government raised taxes on gold imports to contain a record current-account deficit. Government bonds declined.

Duties on gold and platinum were increased to 10 percent from 8 percent, while the levy on silver was boosted to 10 percent from 6 percent, the Ministry of Finance said in a notification tabled in parliament today. The rupee had weakened earlier on concern measures to attract capital inflows won’t be enough to stem the currency’s slide as growth slows.

The rupee advanced 0.1 percent to 61.20 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency, which plunged to a record 61.805 on Aug. 6, touched 61.665 earlier. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 25 basis points to 12.59 percent.

“The measures announced today, however, will only have contingent benefits unless they are supported by broader policy action,” Cristian Maggio, a strategist at Toronto-Dominion Bank in London, wrote in a research report today. The market will pay particular attention to a speech later today by Raghuram Rajan, who will take over as Reserve Bank of India governor when Duvvuri Subbarao’s term ends on Sept. 4, he wrote.

Rajan is due to start speaking at 6.30 p.m. Indian time at the Chicago Booth Asia Campus in Singapore. Financial companies will be able to issue “quasi-sovereign” bonds to attract investment, Finance Minister Palaniappan Chidambaram said in parliament yesterday.

Mixed Data

Wholesale prices probably rose 5 percent last month from a year earlier, compared with 4.86 percent in June, according to the median of 34 estimates in a Bloomberg survey before a report due tomorrow. Consumer prices rose 9.64 percent in July from a year earlier, versus 9.87 percent, official data showed yesterday. Industrial production contracted 2.2 percent in June, dropping for a second month, and the goods trade deficit was $12.3 billion in July, almost the same as in June, as exports rebounded and imports dipped.

“These numbers were too mixed to provide much relief to policy makers,” analysts at HSBC Holdings Plc, including Singapore-based Leif Eskesen, wrote in a research report yesterday.

The yield on the 7.16 percent government bonds due May 2023 rose 10 basis points, or 0.10 percentage point, to 8.40 percent, according to prices from the central bank’s trading system.

Three-month onshore rupee forwards fell 0.2 percent to 62.66 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts fell 0.1 percent to 62.60. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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