Rupee Falls On Growth Worries, Tracking Higher Oil Prices

The rupee fell nearly 0.6% against the dollar on Wednesday, with sentiment dampened by the country's growth estimates missing expectations and as escalations from Russia's invasion of Ukraine continued to sully risk mood.

The significant fallout from Western sanctions on Russia after it commenced a "special operation" in Ukraine is a sharp uptick in oil prices, which breached the $110 per barrel mark for the first time in seven years.

The energy-sensitive rupee finished at 75.77, down nearly 0.6 per cent from its previous close of 75.33 on Monday. Indian markets were closed on Tuesday on account of Mahashivratri.

"The USDINR (dollar/rupee) spot closed 36 paise at 75.70 on the back of rising oil prices. Reserve Bank of India (RBI) intervention may have been responsible for the pair not breaking above 75.85 levels," said Anindya Banerjee, Deputy Vice President, Currency Derivatives and Interest Rate Derivatives at Kotak Securities.

"Over the near term, we expect prices to trade with an upward bias. We see a range of 75.40 and 76.30 levels," he added.

Data showed India's economy grew at 5.4% in the October-December quarter, a slower pace than the previous two quarters, and below 6 per cent predicted by economists in a Reuters poll.

That data was for a period even before the disruptions and renewed restrictions from the omicron variant of the coronavirus took hold. 

Now, there are growing fears the fallout from Russia's invasion of Ukraine may further dent economic growth.

Investors' sour mood was reflected in domestic bourses, with the BSE Sensex slumping 1.38 per cent to close at 55,469 and the broader NSE Nifty moving 1.12 per cent lower to settle at 16,606.

"Nifty drops as the focus remains on geopolitics tensions. Russia's invasion of Ukraine continued to roil the benchmark Nifty as investors remained risk-averse on the backdrop of oil prices which rose its highest levels since 2013," said Prashanth Tapse, Vice President for Research at Mehta Equities.

"We suspect markets will behave like a wild, and any weak rebound attempt will again be swept aside by bears at around Nifty's 17000-17150 zone," he added.