MUFG’s Michael Wan highlights that India has unveiled several austerity-linked policy steps as Strait of Hormuz tensions pressure capital flows and the balance of payments. Authorities sharply raised import duties on Gold and Silver and capped duty-free Gold imports to support the Indian Rupee (INR), while also considering lower withholding taxes on bonds. MUFG remains cautious on INR versus G10 and Asian currencies.

India policy shifts and Rupee outlook

"India produced a cluster of significant policy moves this week, all tied to the government's austerity push amid the Strait of Hormuz driven pressure on capital flows and balance of payments."

"The Finance Ministry raised import duties on gold and silver to 15% from 6%, effective 13 May, and on Thursday capped duty-free gold imports under the Advance Authorisation scheme at 100 kg per approval — measures aimed at curbing non-essential imports and supporting the rupee which continued to hit record lows."

"Separately, Bloomberg News reported that India is considering a significant reduction in withholding taxes paid by foreign investors on domestic bonds, a move recommended by the RBI to the Finance Ministry."

"Overall we continue to remain cautious on INR and think that even in a de-escalation base case, we see INR underperforming key G10 and Asian currencies."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)