Gold and Silver Import Duty Helps Indian Rupee recover against USD

13 May 2026 , 01:06 PM

The Indian Rupee witnessed a mild recovery against the US Dollar, pushing the USD/INR pair lower toward the 95.60 zone. The move came after the Indian government sharply increased import duties on gold and silver from 6% to 15%, aiming to curb bullion imports and ease pressure on the country’s foreign exchange reserves.

While the policy move provided short-term support to the Rupee, broader macroeconomic conditions continue to favor a stronger US Dollar and upside pressure on USD/INR.

Gold Duty Hike Gives INR Temporary Support

India remains one of the world’s largest importers of gold. Since gold purchases are largely settled in US Dollars, heavy bullion imports increase demand for USD and weigh on the Rupee.

By raising import duties on gold and silver, the government aims to discourage excessive imports and reduce dollar outflows from the economy. Lower demand for imported bullion could help stabilize India’s forex reserves and offer temporary support to the domestic currency.

The policy reflects growing concern within the government regarding external sector stability. Prime Minister Narendra Modi reportedly warned about rising pressure on India’s foreign exchange reserves and advised citizens to avoid non-essential gold purchases, reduce fuel consumption, and limit foreign travel to help contain external imbalances.

As a result, the Rupee managed to gain modestly in the near term, leading to a small pullback in USD/INR.

Elevated Oil Prices Continue to Pressure the Rupee

Despite the positive impact of the gold duty hike, crude oil prices remain a significant threat to INR stability.

WTI crude continues to trade near the $97 mark amid ongoing geopolitical tensions involving the United States and Iran. The absence of any meaningful diplomatic breakthrough has kept supply concerns elevated in global energy markets.

FII Outflows Add Additional Pressure

Foreign Institutional Investor (FII) activity remains another major challenge for the Indian currency.

FIIs have reportedly sold nearly ₹21,469 crore worth of Indian equities in May, signaling continued risk aversion toward emerging markets. When foreign investors exit Indian assets, they convert Rupees back into US Dollars, creating additional pressure on the INR.

Strong US Inflation Supports the Dollar

On the global front, the US Dollar continues to remain resilient after stronger-than-expected inflation data from the United States.

US CPI inflation came in at 3.8%, slightly above market expectations of 3.7%. The hotter inflation print reinforced expectations that the US Federal Reserve may maintain higher interest rates for longer than previously anticipated.

Technical Outlook for USD/INR

From a technical perspective, the broader trend in USD/INR remains bullish despite the recent pullback.

Key Levels

• Current trading zone: 95.60
• Immediate support: 94.55–94.56 (20-day EMA)
• Key resistance/target: 96.00

The pair continues to trade above its 20-day Exponential Moving Average, suggesting that the underlying bullish structure remains intact.

RSI indicators are hovering near 65, reflecting positive momentum without entering extreme overbought territory. This indicates that buyers still retain near-term control, although the market may be approaching stretched levels.

Bullish Scenario for USD/INR

USD/INR could continue moving higher toward the 96.00 region and beyond if the following conditions persist:

• Elevated crude oil prices
• Continued FII outflows
• Stronger US Dollar momentum
• Hawkish Federal Reserve expectations

Under such a scenario, the Rupee may struggle to maintain recent gains despite domestic policy interventions.

Bearish or Corrective Scenario

On the other hand, USD/INR may witness a deeper correction toward the 94.50–94.00 zone if:

• Crude oil prices decline meaningfully
• Gold imports fall sharply after the duty hike
• RBI intervention intensifies
• The US Dollar weakens globally

A combination of easing external pressures and stronger domestic support could help stabilize the Rupee in the short term.

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