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The rupee today wiped out initial losses and closed eight paise higher at 61.19 against the dollar as the government announced additional steps to curb the widening current account deficit.
Sustained capital inflows and fresh dollar sales by exporters also supported the rupee.
The rupee opened lower at 61.39 a dollar from the previous close of 61.27 at the Interbank Foreign Exchange Market and dipped to a low of 61.66 on early weakness after data late yesterday showed the Index of Industrial Production contracted in June.
After import duty on gold and silver were increased, the currency bounced back to a high of 60.97 before ending at 61.19, a rise of eight paise or 0.13 per cent. Yesterday, it had dropped by 39 paise or 0.64 per cent.
The government today increased customs duty on gold, silver and platinum to 10 per cent in a bid to curb surging imports and the burgeoning CAD.
"The government is seen taking every possible step to stem the fall in rupee and reduce the widening CAD," said Abhishek Goenka, founder & CEO of India Forex Advisors. "Today, it announced a hike in the import duty of gold, which will help reduce the rising CAD and thereby support the sinking rupee."
The benchmark S&P BSE Sensex closed higher by 282.86 points or 1.49 per cent. Foreign institutional investors bought shares worth a net Rs 408.35 crore yesterday, as per provisional data with the stock exchanges.
The dollar index was up by 0.14 per cent against a basket of six major currencies.
"The trading range for the spot USD/INR pair is expected to be within 60.70 to 61.70," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).
Brahmbhatt said the rupee may breach the all-time low of 61.80 to trade below 62 levels because no strong measures have been taken to overcome the CAD issue.
