The losing streak of the Indian rupee, which hit a new low against the dollar on June 22, is likely to continue say economists, as they revised forecasts following the persistent depreciation in the exchange rate.

As geopolitical troubles and supply-chain disruptions continue, the Indian currency could remain under pressure due to dollar outflows and widening of the current account deficit (CAD), they said.

“Unless oil or dollar break decisively lower, the pair is likely to witness shallow dips,” Radhika Rao, economist at DBS Bank, said in a note. Bank of America (BofA) Securities has revised its rupee target to 81 to a dollar for the year-end from 79 to a dollar.

On June 22, the rupee opened at 78.13 and sank to a new low of 78.29 to a dollar. At 2.35 pm, the currency was trading at 78.25 a dollar, down 0.21 percent from its previous close of 78.08.

This calendar year, the Indian currency has declined 5 percent due to continuous dollar outflows from the local market.

Foreign investors have sold shares worth around $27.22 billion, so far, this year, while in the last nine months, the outflow has amounted to around $32 billion.

“Equity outflows have continued due to risks to corporate margins from higher input prices, while weaker growth may impact the volumes and ability to pass-on the prices.

“Higher funding costs for corporates due to sharp adjustment in bond yields is another source of pressure on the balance sheet which may lead to deleveraging pressure. Higher interest rates would also make investors more risk-averse, thus leading to lower multiples than otherwise,” said BofA Securities economists said in a note to investors. BofA, however, expects the pace of outflow to slow down.

Further dampening the sentiment is the soaring inflation, especially in emerging markets such as India.

“Domestically, inflation risks dominate the narrative, with food joining fuel to keep headline inflation sticky at above target levels. Encouragingly, the shortfall in the southwest monsoon has narrowed to 5 percent below normal as of Jun 20 versus >30 percent gap earlier in the month,” Rao said.

Spatial and geographical distribution of the rainfall would will be crucial for key agrarian states, she said. “Concurrently, fiscal slippage versus target in FY23 seems inevitable due to higher non-capex spend towards subsidies and social assistance”, Rao said. “We continue to be in the camp expecting gradual upside in the USDINR this year, punctuated by official presence to soften the slope.”

Recently, the government cautioned against the re-emergence of the twin deficit problem in the economy, with higher commodity prices and rising subsidy burden leading to an increase in both fiscal deficit and current account deficit.

It’s also the first time the government explicitly talked about the possibility of fiscal slippage in the current fiscal year, Business Standard reported.

BofA expects a CAD of 2.6 percent of GDP in FY23, while the fiscal deficit is projected to be 6.4 percent of the GDP and both are likely to widen beyond the projections.

Despite the sharp fall, the rupee is still better off than most Asian currencies. The Japanese yen has weakened 16 percent against the dollar, the South Korean is down 8.4 percent, the Taiwanese dollar 7 percent, Philippine Peso 6.4 percent, Thai Baht 5.9 percent, Malaysian ringgit 5.4 percent and the Chinese renminbi 5.5 percent.

Analysts say the emerging market currencies are likely to remain under pressure amid policy rate hikes, withdrawal of global liquidity along with persistently elevated inflation and below normal monsoon.

Inflation is unlikely to cool down soon and would require further rate hikes and tightening of liquidity, analysts said.