The rupee fell to an all-time low of 77.44 against the US dollar on Monday on a sell-off in equities amid concerns over the weaker global economic growth outlook, dollar outflows and fears of further monetary tightening by the world’s central banks counter rising inflation.
The previous low experienced by the rupee was on March 7th when it touched 77.14 against the dollar.
“The rupee opened with losses and the currency touched a level of 77.52,” Emkay Global Financial Services said in a note.
“A sell-off in global stock markets triggered by the US Federal Reserve’s interest rate hike, the war in Europe and growth concerns in China over the COVID-19 surge led to the rupee depreciating,” it added.
Pramit Brahmbhatt, CEO of Veracity Financial Services Private Ltd. said: “The rupee has depreciated in many ways. Persistently high crude oil prices are causing dollar outflows. The correction in stock markets is also causing a negative dollar flow.”
“Monday’s trigger was caused by Chinese RMB weakness, which triggered weakness in Asian currencies. The rupee is expected to continue weakening,” he added.
Sugandha Sachdeva, Vice President, Commodity and Currency Research, Religare Broking Ltd. said: “The Indian rupee has fallen to record lows amid deteriorating risk sentiment and the unstoppable tide of foreign outflows from domestic equities.”
“In addition, an unabated rise in the dollar index to a two-decade high, rising US Treasury yields and crude oil prices have all contributed to propelling the domestic currency into a downtrend,” she said.
Stressing that markets are worried about rising inflation and the prospect of aggressive central bank tightening would threaten growth prospects, she said, leading to safe-haven flows in the greenback.
“The hardening of crude oil prices is shaking sentiment, leading to concerns about the widening current account deficit and increasing pressure on the domestic currency. As the Indian rupee broke the previous all-time low of 77.14, it appears poised to see further depreciation towards the 78 level in the short term,” she added.
According to Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, India has seen a $5.8 billion outflow of foreign portfolio investment so far this fiscal year.
“Led by unfavorable global signals, the rupee is trading just below 77.50 – almost 2% lower than last week after the RBI’s surprise rate hike. We expect the new USDINR to be in the 76.50-78 range in the near term,” she added.
The Chinese government’s “zero Covid” policy was seen as a major risk to global growth, analysts said.
“The impact of the lockdown was visible as China’s export growth slowed to single digits in April as restrictions halted factory production, disrupted supply chains and triggered a collapse in domestic demand. Any policy action taken by the PBOC will help improve sentiment, Emkay Global added in its note.
For the coming week, the rupee needs to reclaim the 77.10 level to rally back towards 76.80/76.70. “The bias will remain negative until then and the currency will see further depreciation towards the 77.80 level,” she added.