Importers have been aggressively purchasing the US currency to benefit from a relatively lower rate of crude oil prices for the past couple of weeks, according to forex traders.
The September contract for crude oil on the Intercontinental Exchange has fallen 7% to $81.71 a barrel on Wednesday from $87.95 on July 5. The decline in the price came amid concerns of an economic slowdown in China, the biggest importer of the commodity. As of 4:15 p.m., the crude oil price was at $80.30 per barrel.
To add to the Indian unit’s woes, Union Budget 2024–25 shocked the market with a rise in short-term and long-term capital gains tax, which sparked a foreign fund outflow from domestic equities.
The tax on STCG was raised to 20% from 15% before and on LTCG to 12.5% from 10%. The benchmark NSE Nifty 50 and S&P BSE Sensex declined 0.30% and 0.48% from July 23.
“The general buying of dollars is happening in the foreign exchange market from oil importers, and there’s sudden demand from segments of the equity markets,” VRC Reddy, head of treasury at Karur Vysya Bank, said. “These are occasional, and in such times, the rupee depreciates. At that time, the central bank intervenes and restricts the particular range.”
