Rupee falls to a new low, breaking through 78 per dollar, as global equities markets fall and inflation fears rise

The Indian rupee fell below 78 for the first time on Monday, breaking a new record low against the US dollar, mirroring losses in global stock and currency markets. The ongoing outflows of foreign investors from domestic equities, as well as the rising price of crude oil, lowered mood.

The local currency was trading at 78.22 at 10 a.m., down 0.48 percent from its previous close. The domestic currency began at 78.12 per dollar then dropped to a new all-time low of 78.28 per dollar.

FIIs have sold $23.87 billion in domestic shares so far this year, citing rising petroleum prices as a source of concern about rising inflation and the fiscal deficit.

After Friday's inflation shock, global markets plummeted, raising the prospect of a more aggressive rate hike by the US Federal Reserve, which meets this week.

Consumer price inflation in the United States jumped 8.6% from a year ago, exceeding analysts' expectations of 8.3%, according to US Labor Department data.

The Federal Reserve will meet on Wednesday and is expected to keep hiking key policy rates, while the Bank of Japan is expected to maintain its ultra-easy posture after a two-day meeting on Friday.

India's consumer price inflation will be announced later today. In May, India's headline retail inflation rate is expected to drop to 7.1 percent, with a favourable base effect anticipated to more than offset the impact of a significant increase in prices of important products. Consumer Price Index (CPI) inflation likely declined dramatically this month from a 95-month high of 7.79 percent in April, according to a Moneycontrol poll of ten economists.

The South Korean won sank 1.5 percent, the Indonesian rupiah 0.85 percent, the Taiwan dollar and Philippine peso both lost 0.6 percent, and the Japanese yen, China yuan, and Malaysian ringgit all declined 0.4 percent.

"For the previous three weeks, the USD/INR has been trading in tight ranges, gradually grinding upward over the last three to four sessions. The Reserve Bank of India has intervened to prevent a runaway devaluation of the rupee and to keep volatility in check "In a note to investors, IFA Global stated.

"Following the release of the US CPI data, the USD/INR implied spot burst over the 78 level in offshore trading on Friday. Today's move will entice speculators and put the RBI's resolve to intervene to the test. Given the wide dollar strength, the RBI may enable the rupee to adjust "According to IFA Global.