January 22, 2013 / 4:09 AM / in 5 years

State-run banks' dollar demand trims rupee gains

A bank employee checks a 500 rupee note at a counter of Yes Bank's microfinance division in Mumbai October 25, 2008. REUTERS/Punit Paranjpe/Files

Reuters Market Eye - Dollar demand from state-run banks erases most of the rupee’s early gains. The rupee is at 53.64/65, pulling back from the day’s high of 53.375 following the government’s announcement of raising import duty on gold, a key source of dollar demand after oil in India. The pair had closed at 53.765/775 on Monday.

“Market went excessive short in the morning. So there is some covering up now,” says a dealer with a foreign bank.

India has raised the import tax on gold by 2 percentage points to 6 percent to curb purchases and rein in a ballooning fiscal deficit, but industry officials expect only a moderate drop in demand.

However, the rupee has turned the corner and is seen on a strengthening trend following the recent fiscal and financial reforms undertaken by the government, dealers say.

Reporting by Suvashree Dey Choudhary

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