Rupee ends weaker on capital outflow fears

Reuters: The rupee ended weaker on Wednesday on fears that higher interest rates in the US under President-Elect Donald Trump would spark capital outflows from the domestic market.

Expectations that Trump’s administration will cut taxes, increase spending and accelerate inflation have lifted the dollar and driven bond yields higher.

Rupee forwards were active, with spot-next forwards ending at 148.60/80 per dollar, compared with Tuesday’s close of 148.50/55.

One-week forwards ended at 148.80/149.00 per dollar, compared with Tuesday’s close of 148.60/75. Exporters were reluctant to sell dollars due to global and local uncertainties following the budget, dealers said.

Dealers added that foreign investors might pull out from emerging markets, including Sri Lanka, if the Fed is on course to raise interest rates next month.

“The rupee is under pressure with foreign investors are exiting government securities due to some new taxes,” said a currency dealer requesting anonymity.

Foreign investors net sold Rs. 34.2 billion ($ 231.08 million) worth of government securities in the four weeks ended 9 November, data from the Central Bank showed.

Dealers said a high-tax regime would also affect the rupee.

The national budget has proposed to revise corporate and withholding taxes to boost revenue and cut the 2017 fiscal deficit.