The rupee was flat against the US dollar on Wednesday, with USD/INR near its record level of 95.70. This came as India raised import duty on gold and silver to 15% from 6%.
A Customs Act notification also set a 5% duty on gold and silver findings used in jewellery, such as hooks and clasps. The move followed expectations of steps to limit bullion imports and reduce strain on foreign exchange reserves.
Policy Measures To Curb Bullion Imports
Prime Minister Narendra Modi asked people to delay non-essential gold purchases for almost a year. He also urged lower fuel use and less foreign travel, citing pressure on forex reserves linked to geopolitical tensions.
WTI oil eased to about $97.20 in Asian trade but remained over 6% higher for the week. Prices stayed elevated after US–Iran talks failed, while Iran reiterated demands tied to the Strait of Hormuz and US sanctions.
RBI Governor Sanjay Malhotra said oil prices may need to rise if Middle East tensions persist. In equity flows, FIIs were net sellers in six of seven May sessions, with sales totalling Rs. 21,469.30 crore.
US headline CPI rose 3.8% year on year versus 3.7% expected and 3.3% in March, lifting the dollar index near 98.46. Technical levels cited included the 20-period EMA at 94.55–94.56, RSI (14) near 65, and a possible move towards 96.00.
2025 Context And Lessons For Today
Looking back at the situation around this time in 2025, we recall the extreme pressure on the rupee as it neared an all-time high of 95.70 against the dollar. This weakness was driven by a strong US dollar, high oil prices, and significant capital outflows. The government’s move to hike import duties on gold was a necessary but ultimately insufficient measure to stem the tide.
Today, the environment has shifted considerably from the crisis levels we saw last year. Foreign Institutional Investors have returned as net buyers, with data from the National Securities Depository Ltd. showing over ₹1.5 lakh crore flowing into Indian equities in the fiscal year that just ended. This renewed confidence, coupled with Brent crude oil prices stabilizing below $85 a barrel, provides a much stronger fundamental backdrop for the rupee.
Given this recovery, the aggressive directional bets against the rupee that worked well in 2025 are no longer appropriate. With the USD/INR pair trading in a more stable range near 85.00, we should consider strategies that benefit from lower volatility. Selling out-of-the-money call options on the USD/INR could be a viable strategy, as a sharp depreciation event like last year’s seems unlikely in the coming weeks.
However, we must remain cautious about global factors, particularly monetary policy in the United States. Recent inflation data from the U.S. Bureau of Labor Statistics shows core inflation remaining stubbornly above the Federal Reserve’s target. This persistence suggests the Fed may keep interest rates higher for longer, which could renew broad strength in the US dollar and cap any significant gains for the rupee.
Therefore, while the domestic picture has improved, the threat of a stronger dollar remains a key risk. We can structure option spreads, like a call spread, to limit potential losses if the dollar does unexpectedly rally. This approach allows us to position for a stable-to-stronger rupee while defining our risk in case the global macroeconomic environment deteriorates.
