Energy-sensitive rupee weakens on higher oil prices and record fuel rate hikes
The energy-sensitive rupee weakened to near 76 per dollar on Wednesday as oil prices rose on supply concerns, and a record hike in domestic fuel rates has put the focus back on already high inflation.
Brent crude futures were up over 2 per cent to last trade close to $113 per barrel, while domestic fuel rates have gone up by ₹ 5.60 per litre each after eight rate revisions in the last nine days as of Wednesday, the steepest hike since the daily price revision was implemented in June 2017.
Still, a rally in domestic equities on hopes for a negotiated end to the Russia-Ukraine conflict capped the rupee’s weakness.
Most global equity markets reacted positively to Russia’s promises to scale down its military operations near Kyiv and surrounding cities, though, on the ground, reports of attacks continued, with Asian shares joining that rally early on Wednesday.
Domestic bourses closed in the green on positive news from the latest peace talks in Istanbul more than a month after the most significant attack on a European nation since World War Two.
But oil prices climbed as a fall in American crude stockpiles put the focus back on supply shocks.
PTI reported the rupee opened strong at 75.65 against the dollar at the interbank foreign exchange market but soon entered negative territory as investors dumped riskier assets. During the session, it swung between a high of 75.62 and a low of 75.97.
The currency finally settled to close at 75.94 against the dollar, down from Tuesday’s close of 75.73.
Still, a reversal in capital outflows is likely to boost the appeal of the Indian currency, with the latest stock exchange data showing foreign institutional investors (FIIs) turned to become net buyers in the capital market on Tuesday as they bought shares worth ₹ 35.47 crores.
What is likely to help the rupee is the Reserve Bank of India’s readiness to intervene in case of a currency shock, as the central bank did when the rupee fell to all-time lows against the greenback earlier this month.
