India, the world's biggest edible oil importer, raised its import tax on crude palm oil to 44 percent from 30 percent and lifted the tax on refined palm oil to 54 percent from 40 percent, in a bid to support local farmers.
The benchmark palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange was down 2.4 percent at 2,489 ringgit ($635.84) a tonne at the midday break.
Earlier in the session, it fell by 2.5 percent to a one-week low of 2,485 ringgit. It has shed 1.3 percent so far this week.
"I think exports will be hit, the market won't be able to go up," said a futures trader in Singapore, referring to India's tax hike.
The tax hike by India and the ringgit's appreciation could drag on palm prices, said a Kuala Lumpur-based trader.
A stronger ringgit typically makes the tropical oil more expensive for holders of foreign currencies. The Malaysian currency had strengthened by 0.4 percent against the dollar to 3.9130 by Friday noon.
Trading volumes stood at 37,093 lots of 25 tonnes each at the midday break.
Malaysian palm oil exports rose 6 percent on month to 1.5 million tonnes in January, data from the Malaysian Palm Oil Board showed. But exports in February fell 11 percent to 1.16 million tonnes in February, showed data from cargo surveyor Societe Generale de Surveillance.
In other related oils, the Chicago Board of Trade's May soybean oil contract rose 0.8 percent, while the May soybean oil on China's Dalian Commodity Exchange was up 1.1 percent. The Dalian May palm oil contract fell 0.6 percent.
Palm oil prices are impacted by movements in rival edible oils as they compete for a share in the global vegetable oils market.
Palm oil may test a support at 2,537 ringgit per tonne, a break below which could cause a loss to the next support at 2,512 ringgit, said Wang Tao, a Reuters market analyst for commodities and energy technicals.