Rupee crumbles 44 paise on LTCG tax, fiscal deficit woes

Mumbai: The rupee on Thursday plunged 44 paise to close at a near two-week low of 64.02 against the US dollar after the government announced long-term capital gains (LTCG) tax on equities and widened its fiscal deficit target while unveiling the Union Budget.

Besides, forex market sentiment turned subdued after the government’s revised estimate showed that the net borrowing for the current fiscal was raised steeply to Rs 4.79 lakh crore as against the estimate of Rs 3.5 lakh crore.

This is the biggest one-day fall for the rupee since January 16.

The Centre on Thursday introduced long-term capital gains tax of 10 per cent on stock market gains exceeding Rs 1 lakh, resulting in volatility in forex market.

Unveiling the Budget 2018-19, Finance Minister Arun Jaitley projected a higher fiscal deficit of 3.5 per cent of the GDP for 2017-18, as against the target of 3.2 per cent.

Forex market sentiment turned highly volatile and reacted vehemently to some key Budget announcements, triggering panic dollar buying by corporates and importers.

A sharp sell-offs in local equities in knee-jerk reaction to proposed 10 per cent long-term capital gains tax on equity also weighed heavily on the rupee front.

It was a double-whammy for the Indian currency following the FOMC announcement hit hard by hawkish Federal Reserve policy and a sudden rise in global crude prices.

The FOMC held interest rates unchanged in line with market expectations but the accompanying statement was a bit more hawkish on the economy and inflation warranting further rate hikes in 2018.

On the international commodity front, crude price forged ahead in a powerful advance after a brief slippage on news of strong compliance with production cuts from OPEC despite rising US production data which topped 10 million barrels per day for the first time in nearly half a century.

Brent crude futures were trading higher at USD 69.35 a barrel in early Asian trading.

Earlier, the rupee resumed lower at 63.64 against the Wednesday’s close of 63.58 at the Interbank Foreign Exchange (forex) market reacting to FOMC outcome and a strong dollar overseas.

Post announcements of budgetary proposals, the home currency took a severe knock in late afternoon trade, breaching the key 64-mark in the face of heavy dollar demand.

It touched a fresh intra-day low of 64.03 before ending at 64.02, showing a steep fall of 44 paise, or 0.69 per cent.

Though, the rupee touched a high of 63.55 briefly.

The RBI, meanwhile, fixed the reference rate for the dollar at 63.6113 and for the euro at 78.9480.

Globally, the US dollar turned lower against other major currencies, as investors became more cautious ahead of Friday’s highly-anticipated employment data.

The greenback briefly rebounded after the Federal Reserve, at the conclusion of its policy meeting on Wednesday, signalled its confidence about inflation and growth in the US.

The dollar index, which measures the greenback’s value against a basket of six major currencies, was down at 88.81 in early trade.

In cross-currency trades, the rupee plummeted sharply against the pound sterling by a whopping 222 paise to end at 91.13 per pound from 89.91 and also dropped against the euro to finish at 79.58 as compared to 79.17 earlier.

The local currency, however, strengthened against the Japanese yen to close at 58.35 per yens from 58.46 yesterday.

Elsewhere, both the British pound and euro rebounded after a brief overnight fall ahead of UK manufacturing PMI data amid renewed US dollar sell-offs.

In forward market today, premium for dollar displayed a steady to firm trend due to lack of market moving factors.

The benchmark six-month forward premium payable in July moved up to 142-144 paise from 141-143 paise and the far- forward December 2018 contract also firmed to 281-283 paise from 278-280 paise previously.