2012.05.07 14:36:17 Indian Rupee Gains After Tax Proposal Deferred, Bonds Tad Down

At 1200 GMT Latest Change USD/INR 52.92 -0.55 9.15% 2024 Bond 8.70% +1 BPs Call Rate 8.25% -21 BPs Forward Dollar Premium/Discount* April 3.10 +0.075 *Forward Dollar Premium/Discount are midpoints of bid-offer spreads MUMBAI (Dow Jones)--The Indian rupee swung to sharp gains against the dollar from early losses Monday, boosted first by a suspected central-bank intervention and then by the government's decision to postpone a controversial tax proposal. The greenback was trading at INR52.92 late Monday in Asia, down from INR53.47 late Friday. The rupee started the session lower, tracking a wave of global risk aversion after Greek voters rejected the austerity policies of their government and as France's incumbent president was voted out of power. The risk-off mood pushed the dollar up to an intraday high of INR53.76. But, the suspected central bank intervention triggered stop-loss selling of dollars and nudged the rupee into the positive territory, three dealers told Dow Jones Newswires. The decisive boost for the rupee came after Finance Minister Pranab Mukherjee proposed in parliament that the implementation of the general anti-avoidance rule, or GAAR, be postponed to the next financial year starting April 1, 2013. The rule, which was proposed in the government's budget for the current financial year, gives authorities powers to scrutinize any deal that they feel has been structured to evade taxes. The proposal has been a major drag on foreign fund inflows as investors feared it would be used to target transactions routed through jurisdictions such as Mauritius with which India has a double-tax-avoidance treaty. "Now that the concerns over GAAR are off the radar, the outlook for the rupee has changed from negative to neutral," said Moses Harding, head of the global markets group at IndusInd Bank. Dealers said steps taken by the central bank Friday to arrest the rupee's slide will also support the local unit. The RBI raised the interest rate cap on foreign-currency deposits held by overseas Indians and also freed interest rates on export credit in an effort to bring more foreign currencies to Indian banks. In the sovereign debt markets, government bonds ended slightly down on profit-taking after trading higher for most of the session. Bonds gained earlier from a flight to safety by investors amid renewed uncertainty over the euro zone's plans to implement austerity measures, following the election outcomes in Greece and France. The most-traded 9.15% 2024 bond ended at INR103.40, compared with INR103.43 on Friday. The benchmark 8.79% 2021 bond, however, lagged other papers as traders expect a new 10-year bond to be issued this week to replace the current benchmark. It fell to INR100.64 from Thursday's INR101.09. Trading in the bond was suspended Friday for coupon payments. Bond prices are likely to rise Tuesday after the central bank announced it would repurchase up to INR120 billion of bonds Friday to ease liquidity conditions. The announcement came after market hours. -By Sudeep Jain, Dow Jones Newswires; 91 22 6145 6123; sudeep.jain@dowjones.com (END) Dow Jones Newswires May 07, 2012 08:36 ET (12:36 GMT)