Dollar outflow and growth fears push the rupee to a new low.

The rupee hit an all-time low of 77.44 against the US dollar on Monday, owing to a sell-off in shares on concerns about faltering global economic growth prospects, currency outflows, and fears of central banks tightening monetary policy to combat growing inflation.

The rupee's previous closing low was 77.09, which occurred on March 07, 2022.

In a report, Emkay Global Financial Services said, "The rupee opened with losses as the currency hit levels of 77.52."

"The rupee depreciated due to a sell-off in global equities markets driven by the US Federal Reserve's interest rate hike, the war in Europe, and growth fears in China because of the COVID-19 surge," it added.

Veracity Financial Services Private Ltd. CEO Pramit Brahmbhatt stated, "The rupee has lost value in numerous ways. Continuously increasing crude prices are driving a monetary outflow. The equity market slump is also producing a negative flow of dollars."

"The catalyst on Monday was the Chinese RMB's depreciation, which spurred weakness in Asian currencies. The rupee is anticipated to fall even further "He continued.

'A never-ending outflow'

"The Indian rupee has tumbled to record lows amid deteriorating risk sentiment and the persistent frenzy of international outflows from local equities," said Sugandha Sachdeva, vice president, Commodity and Currency Research, Religare Broking Ltd.

"Aside from an unrelenting climb in the dollar index to a two-decade high, skyrocketing U.S. bond yields, and rising petroleum prices, all of these factors have conspired to push the native currency down," she said.

She stressed that markets were concerned about growing inflation and that the potential of vigorous tightening by the central bank would jeopardize the growth prospects, resulting in safe-haven flows towards the dollar.

"Rising crude oil prices are upsetting sentiment, raising fears of a worsening current account deficit and adding to the pressure on the domestic currency." Following the breach of the previous all-time lows of 77.14, the Indian rupee appears to be headed for an additional decline towards the 78-mark.

According to Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, India has seen a $5.8 billion outflow of foreign portfolio investment so far this fiscal year.

"Led by negative global indications, the rupee is trading near 77.50, down roughly 2% from highs near 75.99 seen last week following the RBI's surprise rate hike. In the short term, given the uncertainties and limited RBI action, USDINR could drift towards 78 levels. In the short term, we expect the new USDINR to trade in the region of 76.50-78," she noted.

The Chinese government's 'zero-covid policy,' according to analysts, has been considered a huge risk to the world economy.

"As a result of the restrictions, China's export growth dropped to single digits in April, as industrial production was halted, supply networks were disrupted, and domestic demand collapsed." Any policy move by the PBOC will assist to boost mood, according to Emkay Global.

In the coming week, the rupee must retake levels of 77.10 in order to resume its recovery towards 76.80/76.70. "Until then, the bias will remain negative, and the currency will continue to depreciate towards 77.80 levels," it warned.