The rupee today breached the 63 level to end at 63.13 against the US dollar.
Yields on the 10-year benchmark bond hit a five-year high of 9.24 percent.
Yields are inversely proportional to prices, i.e. bond prices crashed due to rupee free fall. Data by CNBC-TV18 shows, the rupee marked its biggest single day fall in the last 10 years by plunging 2.8 percent in the last two trading sessions.
The Indian currency has lost 15 percent this year-to-date.
With signs of US tapering its bond buying programme, FIIs are pulling out and there is general mayhem in the market, Dipen Sheth, Head-Institutional Research, HDFC Securities told CNBC-TV18.
Worsening financial scenarios, tighter credit conditions and rising burden of structural adjustments are likely to diminish prospects of recovery in the short and medium term.
Clearly, the government’s defence of the currency failed to stop a declining rupee from plunging further but exacted a rising toll, with bond yields surging to five-year highs and investors demanding higher returns in an auction of cash bills.
Policymakers’ measures to prop up the currency, which has tumbled 12 percent against the dollar so far in 2013, have thus far proved ineffective, making it the worst performer in emerging Asia and threatening to drive India towards a full-blown crisis.
The rupee’s slide has fuelled expectations of more action from the Reserve Bank of India (RBI), which last week curbed outflows from companies and individuals, roiling stock and bond markets.
“A depreciating rupee will result in increased costs for various companies, thereby impacting margins. Thus, even at lower stock prices, the valuations have not turned appealing,” said Dipen Shah, head of Private Client Group Research, Kotak Securities.
“Rupee has remained weak despite various measures undertaken by the Government and RBI. This is due to the high level of CAD. The FM has reiterated his intent on controlling the CAD to about $70bn in the current fiscal and financing the same without draining forex reserves. Further announcements on attracting investments in infrastructure and other core sectors will likely attract more forex flows and instill some confidence in the rupee. This may have a consequent positive impact on market sentiment,” Shah added.
Deteriorating economic troubles at home have added to the currency’s woes.
The government is struggling to reduce its current account deficit, which currently stands at 4.8 percent of gross domestic product (GDP), while attempts to push through structural reforms by relaxing restrictions on foreign direct investment have seen little progress.
The Sensex fell 1.56 percent, or 290.66 points, to end at 18,307.52, adding to Friday’s 4 percent fall, marking its lowest close in nearly four months.
The Nifty slumped 1.69 percent, or 93.10 points, to end at 5,414.75, marking its lowest close since September 11, 2012.
Investors are also waiting to see if minutes of the Federal Reserve’s last policy meeting due on Wednesday will provide some clarity on when it might start scaling back stimulus.