By Nimesh Vora
MUMBAI (Reuters) -The Indian rupee is coming under increased strain with rising dollar demand linked to gold imports coinciding with concerns over the impact of a U.S. visa fee hike, according to bankers.
Dollar demand from jewellers has risen nearly three times the normal level in recent days, a banker at mid-sized private sector lender said. Others noted that the spike reflects heavy gold buying during the ongoing Dusherra festival, a celebration traditionally marked by jewellery purchases.
Additionally, demand is being driven by stockpiling ahead of Diwali next month, a major Hindu festival when gold buying typically peaks across India.
The import duty on gold is set fortnightly. Since gold prices have risen since the last revision, the duty is expected to increase next week. Therefore, to avoid higher duties, jewellers are front-loading imports ahead of Diwali, a banker said.
“Individually, the size of this demand will not sway the market,” the banker added.
“However, when you stack it against the U.S. visa fee news and the broader stress (on the rupee), the flows have a bigger impact than they would on their own.”
The United States has imposed a $100,000 fee for new H-1B visas, a move that may slow the deployment of Indian IT workers and weigh on services exports and remittances.
“Remittances are an important source of foreign currency receipts for India, equal to $120 billion or 3.4% of GDP.” Capital Economics said in a note, adding that a quarter of these remittances originate in the U.S.
The rupee had already been under pressure before the visa fee increase, weighed down by steep U.S. tariffs on Indian goods and subdued portfolio inflows.
“We were already forecasting a widening in the current account deficit and further weakness in the rupee over the coming quarters on account of the punitive tariff on goods exports to the US.,” Capital Economics said.
“A fall in remittance flows (relative to GDP) would exacerbate both trends.”
The rupee hit a record low of 88.7975 to the dollar on Tuesday and was set to fall further on Wednesday before the central bank intervened to provide support. It was quoting at 88.7325 at 12.52 am IST.
(Reporting by Nimesh Vora; Editing by Sonia Cheema)
