Rupee hits new low owing to dollar outflow, growth concerns

Likely to touch 78, say analysts

May 09, 2022 07:51 pm | Updated 08:24 pm IST - Mumbai

The previous all-time low for the rupee was 77.14 to a US dollar.

The previous all-time low for the rupee was 77.14 to a US dollar. | Photo Credit: AMIT DAVE

The rupee on Monday fell to an all-time low of 77.44 against the U.S. Dollar due to a sell-off in equities amid concerns around weakening global economic growth prospects, outflow of dollar and on fears of further tightening of monetary policy by central banks to counter rising inflation.

The previous closing low for the rupee was 77.09, witnessed on March 07, 2022.

“The rupee opened with losses and the currency hit levels of 77.52, " Emkay Global Financial Services said in a note.

"A sell-off in the global equity markets which was triggered by the hike in interest rates by the U.S. Federal Reserve, the war in Europe and growth concerns in China due to the COVID-19 surge, led to the rupee depreciation," it added.

Pramit Brahmbhatt, CEO, Veracity Financial Services Private Ltd., said, "The rupee depreciated on many counts. Continuous high crude prices is causing the outflow of dollars. The correction in equity markets is also causing adverse flow of dollars."

"Monday's trigger was caused by weakness in the Chinese RMB which has triggered weakness in Asian currencies. The rupee is expected to weaken further," he added.

‘Relentless outflow’

Sugandha Sachdeva, vice president, Commodity and Currency Research, Religare Broking Ltd., said, "The Indian rupee has plummeted to record lows amid the deteriorating risk sentiment and the unrelenting spree of overseas outflows from domestic equities."

"Besides, an unabated rise in the dollar index towards a two-decade high, soaring U.S. treasury yields and crude prices, all of them have worked their way to push the domestic currency on a downward trajectory," she said.

Emphasising that markets were concerned about rising inflation and that the prospect of an aggressive tightening by the central bank would threaten the growth outlook, she said this would lead to safe-haven flows in the greenback.

"Hardening crude oil prices are roiling sentiment, leading to worries about the widening current account deficit and exacerbating the pressure on the domestic currency. Going ahead, as the Indian rupee has breached the previous all-time lows of the 77.14 mark, it seems poised to witness further depreciation towards the 78-mark in the near term," she added.

According to Upasna Bhardwaj, senior economist, Kotak Mahindra Bank, India has witnessed Foreign Portfolio Investment outflow of $5.8 billion so far this financial year.

"Led by adverse global cues, the rupee is trading shy of 77.50 - nearly 2% lower from highs of near 75.99 levels witnessed last week post the surprise rate hike by RBI. Given the uncertainty and limited RBI intervention, USDINR could trend towards 78 levels in the immediate near term. We expect the new USDINR in the range of 76.50-78 in the near term,” she added.

According to analysts, the Chinese government’s ‘zero-covid policy’ has been viewed as a major risk to global growth.

"The effects of the lockdown were seen as China’s export growth slowed to single digits in April, as the curbs halted factory production, disrupted supply chains and triggered a collapse in domestic demand. Any policy action by the PBOC will help improve sentiment, Emkay Global added in its note.

For the week ahead, the rupee needs to reclaim levels of 77.10 to see a recovery towards 76.80/76.70 again. "The bias will stay negative until then and the currency will see further depreciation towards 77.80 levels," it added.

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