* Rupee posts biggest daily gain in six weeks
* RBI seen selling USD, seeks to boost inflows
* Rupee unlikely to gain much due to India's outlook
By Subhadip Sircar
MUMBAI, May 7 The Indian rupee posted
its biggest percentage gain against the dollar in six weeks on
Monday after the country postponed controversial rules on
foreign taxation by a year, helping soothe worries about flows.
The rupee extended gains in the afternoon session after
Finance Minister Pranab Mukherjee told lawmakers that India will
delay the General Anti-Avoidance Rule (GAAR) until fiscal
The local currency had already been propped up in morning
trade by expectations of a more active central bank, with
dealers saying the Reserve Bank of India had likely sold dollars
soon after trade opened.
On Friday, the central bank on Friday announced measures to
bolster currency inflows, signaling its intention to prop up a
rupee that had taken a hit in recent weeks due to the
uncertainty over GAAR and the concerns over India's fiscal and
The main stock index, which was down as much as 1.9
percent in early trade, reversed losses to gain 0.5 percent.
"With GAAR implementation deferred by a year, inflows are
likely to resume in the coming days, pushing USD/INR lower,"
Standard Chartered Bank said in a note.
The rupee rose 1.08 percent against the dollar, its
biggest daily gain since March 27, to settle at 52.9050/9150
after falling to as low as 53.76 in intraday trade. It had
closed at 53.47/48 on Friday,
Standard Chartered analysts expect immediate psychological
support for the pair at 52.50, with a break of that leading to a
test of 51.98, the 38.2 percent Fibonacci retracement of the
up-move from 48.85 to 53.92.
Analyst don't expect significant falls in USD/INR over the
longer-term, however. Worries about India, especially about its
widening current account deficit, are unlikely to spur inflows,
despite the removal of GAAR as a near-term risk, traders said.
The global risk environment is also worsening, as seen on
Monday when the euro fell to a three month low following Greek
and French election, while the disappointing U.S. jobs data is
also adding to the caution.
The RBI's actions on Friday to relax the interest rate
ceiling on certain foreign currency banks deposits of banks are
unlikely to help the rupee, analysts added, while the central
bank also has limited firepower for more forex interventions.
The one-month offshore non-deliverable forward contracts
were at 53.23.
In the currency futures market, the most-traded
near-month dollar-rupee contracts on the National Stock
Exchange, the MCX-SX and the United Stock Exchange all ended
around 53.19 on a total volume of $5.25 billion.
(Editing by Rafael Nam)