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The rupee strengthened marginally on Tuesday following the government's decision to hike import duties on gold and silver, but traders said the piecemeal approach failed to provide adequate confidence to the market.
India hiked the import duty on gold to a record 10 per cent and also raised excise duty on the metal, with the announcement coming after Finance Minister P Chidambaram unveiled a slew of measures to narrow the current account deficit but without providing most of the specifics.
Analysts worry that without more fundamental reforms, India will struggle to contain its record high current account deficit and hence support the rupee.
"These measures alone are not going make a large difference, these are only going to help sentiment temporarily," said Naveen Raghuvanshi, a senior foreign exchange dealer with Development Credit Bank.
"Rupee has dropped despite recent measures as the key issue is not to try to stop outflows but to bring in inflows. “As long as that doesn't happen, the downward pressure on the rupee will remain. 60.50 to 61.50 range should hold on the USD/INR but there is a high chance of a break on the upside,"
The partially convertible rupee closed at 61.19/20 per dollar compared to 61.2750/2850 on Monday.
The unit moved in a wide 60.9650 to 61.66 range during the session.
Traders said there was good dollar demand from all quarters with oil firms seen buying almost through the day.
Dealers are also awaiting details of the government's proposed curbs on import of non-essential items like electronics while the central bank is also due to release details of the non-resident Indian deposit schemes and overseas borrowing rules relaxations as announced by the finance minister on Monday.
"These are only temporary measures. “There is a huge demand-supply mismatch in the market and until that is bridged, the rupee will continue to weaken," the chief dealer at a state-run bank said.
Traders will now await the wholesale price inflation data, due Wednesday, for immediate cues.
In the offshore non-deliverable forwards, the one-month contract was at 61.72 while the three-month was at 62.67.
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 closed at around 61.33 with a total traded volume of $2.88 billion.
