Indian rupee gains most in 3 yrs as risk assets rally

Fri Jun 29, 2012 6:06pm IST

* Rupee's biggest daily percentage gain in 3 years

* EU summit comments fuels gains in risk assets

* Euro gains more than 1 pct against dollar, yen (Updates prices, adds comments)

By Subhadip Sircar

MUMBAI, June 29 (Reuters) - The Indian rupee posted its biggest daily gain in three years on Friday after the government confirmed it will not impose retroactive taxes on foreign investors and as global risk asset rallied.

Euro zone leaders agreed on Friday to take emergency action to bring down Italy's and Spain's spiralling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.

The improved global risk environment comes as investors are growing more hopeful of meaningful policy reforms at home after Prime Minister Manmohan Singh, a former central bank governor, took charge of the finance ministry.

The government released draft rules on Thursday and said the general anti avoidance rules, or GAAR, would not apply retroactively, a big concern for portfolio investors.

"The INR may outperform as well as India seems to be backtracking on its plans to retroactively apply new tax rules that would penalize a major foreign direct investor," said Dariusz Kowalczyk, senior economist & strategist for Asia ex-Japan at Credit Agricole.

The rupee settled at 55.6050/6150 as per State Bank of India data, rising 3.1 percent over its previous close. It rose 2.7 percent on the week, its biggest weekly gain in over two and half years.

That marked a turnaround after the rupee tumbled to a record low of 57.32 against the dollar a week ago. "I will wait for more clarity on the euro measures. The dollar/rupee broke a very important support at 56. If it sustains below that, we can see a further fall," said Abhishek Goenka, chief executive at India Forex Advisors.

India has been buffeted by various macroeconomic concerns, primarily the twin fiscal and current account deficits, leaving it vulnerable to capital outflows at a time of global risk aversion.

However, with Singh, widely credit with ushering in economic reforms in India in the 1990s, taking charge of the finance portfolio, investors are hoping he will push some much awaited reforms and address concerns on tax issues.

Global risk aversion has also improved. The euro surged following relief after the statement from European leaders, raising hopes it could help ease a big recent overhang in global markets.

One-month offshore non-deliverable forward contracts were quoted at 56.02.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX all ended at 56.0550. The total volume was at $4.9 billion. (Editing by Anand Basu)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Back to Investors

REUTERS SHOWCASE

Health Reforms

Health Reforms

India reviews state hospitals to end widespread corruption.  Full Article 

New Rules

New Rules

RBI says all companies must apply 2-step payments for credit cards.  Full Article 

Still Popular

Still Popular

Indians keep faith with Modi, best hope for economy - poll.  Full Article 

New Adviser

New Adviser

Arvind Subramanian likely to be chief econ adviser.  Full Article 

Pricing Mechanism

Pricing Mechanism

Govt sets up a four-member panel to re-examine gas pricing.  Full Article 

Royalty Rates

Royalty Rates

India to hike iron ore royalty, miners may struggle to pass on extra cost.  Full Article 

Diesel Deregulation

Diesel Deregulation

Oil ministry to seek Cabinet nod on diesel deregulation - sources  Full Article 

Commodities

Commodities

Gold near two-month low; set for weekly drop on interest rate fears  Full Article 

Helping Regional Mills

Helping Regional Mills

Govt raises sugar import duty to 25 pct from 15 pct.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage