MUMBAI, June 4 (Reuters) – The Indian rupee slumped on Tuesday after vote counting trends signalled that Prime Minister Narendra Modi’s Bharatiya Janata Party-led alliance would win a narrower majority than was expected, spurring a selloff in local equities.
The rupee closed at 83.53 against the U.S. dollar, down 0.47% on the day, its worst single-day percentage fall since February last year.
The Reserve Bank of India (RBI) likely stepped in to limit the rupee’s decline, traders said. State-run banks were spotted offering dollars near 83.50 levels, likely on behalf of the RBI.
The sales were intended to plug likely outflows instead of pushing the dollar-rupee pair lower, a foreign exchange trader at a large private bank said.
Indian equity indices plunged on worries about the election outcome. The Nifty 50 Index had its worst day in over 4 years and Indian bond yields rose.
Markets reacted negatively due to the smaller-than-expected mandate and (PM Modi’s) Bharatiya Janata Party not achieving a majority on its own, Shreya Sodhani, regional economist at Barclays Bank said.
“The government is still likely to be stable, but markets will likely take a while to gain confidence in the new government,” she added.
The worry for Indian markets was that a slimmer mandate for the Modi-led alliance could hamper the undertaking of more economic reforms.
Meanwhile, the dollar index rose 0.2% to 104.3 while most Asian currencies rose, with the Thai baht up 0.6% and leading gains.
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Reporting by Jaspreet Kalra; Editing by Janane Venkatraman
Our Standards: The Thomson Reuters Trust Principles.
