The rupee recovered slightly on Wednesday from its record low close of 77.78 per cent in the previous session after the Reserve Bank of India hiked its key lending rate by 0.5 per cent and maintained a hawkish stance thereby restricting significant losses for the currency.
The RBI hiked its key lending rate by 0.5 per cent, a second increase in 5 weeks to combat runaway inflation.
A sell-off in domestic equities and a stronger greenback had dented investor sentiment and pushed the rupee to tumble 12 paise to close at a fresh lifetime low of 77.78 against the dollar on Tuesday.
Persistent foreign capital outflows from emerging market economies, including India, on the US central bank's aggressive rate hike path and elevated global crude oil prices have weighed significantly on the energy-sensitive currency.
PTI reported the rupee provisionally closed at 77.75 against the dollar, while Bloomberg quoted the currency at around 77.74 from 77.71 previously.
At the interbank forex market, the local unit opened strong at 77.70 against the greenback and witnessed an intra-day high of 77.64 and a low of 77.79. It finally settled at 77.75, a rise of 3 paise over its previous close.
In the previous session, the rupee had settled at a lifetime low of 77.78 against the greenback.
But the rupee was expected to remain weak on risk aversion in global markets and a strong dollar.
The dollar climbed ahead of the US inflation data due on Friday and expectations of a 50 basis points rate hike by the Federal Reserve next week.
"Globally, the all-important US CPI inflation data will be released on Friday and any uptick in the number will see the Fed hardening its already hawkish stance. Fed officials may start signaling rate hikes beyond September and the dollar will rally towards $105 levels in that case," noted the Currency Desk of Emkay Global Financial Services.
On the contrary a decline in the inflation number will trigger further correction in the greenback towards $99 levels. Further depreciation in the rupee will be seen if levels around 77.80 starts to be breached consistently. This will open targets of 78.25 for the rupee,” added the currency desk.
Oil prices rose on Wednesday, on the easing of Chinese COVID-19 related lockdowns and a possible strike by Norwegian oil workers, despite a likely rise in US oil stocks.
Brent crude futures were last up $1.01, or 0.8 per cent, at $121.58 a barrel. US West Texas Intermediate crude was higher at $120.62 a barrel, up $1.21, or 1 per cent.
While domestic equities once again closed in the red, the rupee was helped somewhat by the RBI's stance to bring price pressures under control after the central bank raised its inflation projection to above the target for this year.