Economy stares at crisis as rupee suffers worst single-day fall of 142p At 63.13 To $, Worsens Fears About Growth And Inflation

Mumbai: Policymakers may still be in denial but the Indian economy is clearly staring at a crisis, with the rupee on Monday recording its sharpest drop ever in absolute terms to close at 63.13—1.42 paise down from its previous close against the dollar. 

    Economists are now forecasting an exchange rate of 65 in the short-term. The rush of capital out of India, which has triggered the fall, has raised the prospects of inflation, growth falling below 5% and higher interest rates. 
    The rupee fell nearly 2.25% in a day, making all imports that much more expensive. Stock prices too crashed on Monday. The sensex fell 291 points to 18,308. 
    The rupee's fall was the sharpest among all currencies as rising interest rates in the US pushed up the greenback against all emerging currencies. As a result, investment funds from the West are pulling money out of emerging markets and back into US treasuries. Besides the rupee, the Indonesian rupiah touched a four-year low, while the South African rand fell below 1%. 
    The RBI's fire-fighting measure of keeping rupee funds in short supply to rein in the dollar have not helped much but have caused immense collateral damage. 
    The yield on 10-year government bonds has risen past 9%. This has compelled banks to raise interest rates on deposits and loans. Consumers buy less and businesses pull back on investments as rates rise, dragging down growth. 
10-YR GILT YIELD AT 5-YR HIGH 
Yield on 10-year government security is taken as the best risk-free return possible. Banks and other lenders take this yield as the benchmark rate for fixing lending rates. Any major change in this rate impacts all rates, including housing, auto, consumer. It also pushes up FD rates. 
    Since May 24, the benchmark yield has risen by 2.11 percentage points to Monday's close of 9.22%. This is the highest 10-year yield in almost five years 
SENSEX DIVES 291 POINTS 
    Sensex lost another 291 points on Monday, taking the total loss in last two sessions to 1,060 points 
    Investors were left 3.2 lakh crore poorer with BSE's market cap now at 59.3 lakh crore 
    FIIs were net sellers of 680cr on Monday, adding to their 520cr net selling on Friday