Rupee ends higher alongside local equities; premiums, volatility flat

The Indian rupee rose on Monday, boosted by the rally in local equities on Prime Minister Narendra Modi's planned tax cuts, while forward premiums and volatility expectations barely budged following the Trump-Putin meeting.

The rupee settled at 87.35 per U.S. dollar, up 0.23% from 87.55 in the previous session, rising in tandem with local shares. The Nifty 50 rose 1% - the biggest single-day percentage gain since June 26, 2025 - to 24,876.95 points and the BSE Sensex gained 0.84% to 81,273.75.

New Delhi will propose a two-rate structure of 5% and 18%, doing away with the 12% and 28% tax that was imposed on some items, a government official said on Friday, after Modi announced the reforms.

The tax cuts are expected to boost consumption in India's economy, with steep U.S. tariffs threatening economic growth, dragging the rupee and dampening the foreign investor appetite for local equities.

The tax cuts, coupled with faint hopes of progress on a Russia-Ukraine deal, could encourage foreign investors back into Indian equities, lending support to the rupee, traders said.

Following his meeting with Russian leader Vladimir Putin, U.S. President Donald Trump is pressing for a Russia-Ukraine deal. Ukraine's Volodymyr Zelenskiy flies to Washington on Monday for meeting Trump.

Any tangible progress would likely be taken as a boost for the rupee, traders say, as it could improve the odds that Trump might reverse the additional 25% tariffs on Indian goods for purchase of Russian oil, currently scheduled to take effect on Aug. 27.

The rupee's near-term outlook remains tethered to how U.S.-India trade relations shape up, Kunal Kurani, vice president at FX risk advisory firm Mecklai Financial, said.

For now, he is advising his importer clients to hedge on dips on the dollar/rupee pair.

Meanwhile, the dollar/rupee forward premiums and volatility expectations barely moved in response to the Trump-Putin meeting over the weekend, in line with the mostly muted reaction seen across Asian markets.