The currency weakened after the benchmark equity index fell 1.1% while the MSCI Asia Pacific Index dropped 2.9%. Overseas investors sold Indian shares worth $3.6 billion in the seven trading days through January 24, a record for such a period, data provided by the Securities and Exchange Board of India show.
The rupees appreciation trend appears to have been halted, said V Ravi Kumar, senior director of treasury at IDFC Ltd. in Mumbai. Capital inflows have come under a question mark due to concerns about a global economic slowdown.
The rupee declined to 39.385 per dollar in Mumbai, according to data compiled by Bloomberg. It fell as low as 39.4825 earlier. The currency fell 0.2% last week, its second weekly loss.
The bonds fell for the second day after the RBI said inflation doesnt reflect last year's surge in crude-oil prices, signaling it may keep interest rates at a 5 1/2-year high at its meeting on Tuesday.
The benchmark yield climbed from near the lowest in 14 months on speculation some investors deemed the recent rally in the debt securities too fast given that inflation still remains the focus of the Reserve Bank of India.
The RBI, in a report on Monday, said inflation has remained suppressed because of domestic subsidies on local fuel prices.
I am not expecting any change in interest rates on tuesday, said Dhawal Dalal, who manages the equivalent of $2.2 billion of debt at DSP Merrill Lynch Investment Management Ltd in Mumbai.
There will be some pullback in yields if the central bank doesn't do anything.
The yield on the most-traded 7.99% note due 2017 rose 3 basis points, or 0.03 percentage points, to 7.45% in Mumbai, according to the RBIs trading system.
The price fell 0.22, or 22 paise, per Rs 100 face amount to 103.58.