Rupee slumps past 68 for first time since Jan 2017
MUMBAI: Rupee and bond prices slumped on Tuesday after the Bharatiya Janata Party (BJP) fell short of gaining a clear majority in Karnataka assembly elections.
The Indian currency weakened past the 68-mark for the first time since January 2017 while the 10-year bond yield hit a threeyear high.
The latest trend in Karnataka election results showed the BJP winning nearly 104 seats—short of the 112-mark needed to form a government. The Siddaramaiah led-congress party and the Janata Dal (Secular), or JD(S), are leading in 115 seats, according to the Election Commission of India’s website.
The Congress said it will extend support to JD(S) in forming the next government in Karnataka where the election results indicate a hung Assembly. The home currency closed at 68.11 a dollar—a level last seen on January 24, 2017, weakening 0.86% from its previous close of 67.52. Rupee hit its all-time intraday low of 68.85 on November 24, 2016, and on closing basis, it hit all-time low of 68.82 a dollar on August 24, 2013 . Yield on the 10-year government bond ended at 7.905%—a level last seen on May 18, 2015, from its previous close of 7.825%. Bond prices and yields move in opposite directions.
Traders were also cautious due to the recent data that showed higher inflation, fearing a rate hike by Reserve Bank of quickened to 4.6% in April, faster than the 4.4% of consensus. Wholesale price index (Wpi)-based inflation accelerated to 3.18% in April from a year ago higher than 2.9% median estimate in a Bloomberg survey economists.
“(Higher inflation) validate our expectations for the RBI policy committee to veer towards a hawkish stance in June (small probability of a pre-emptive hike) and pave the way for a 25 bps increase in August. With another move likely in Q4 FY18, we see room for cumulative 50 bps hikes in FY19. Slow progress on the banks’ bad asset resolution and a gradual turnaround in growth suggest that an aggressive hiking cycle is unlikely,” said Radhika Rao economist at DBS Bank Ltd.