Mumbai: The Indian rupee and bond prices on Tuesday slumped after the latest round of counting in Karnataka election results showed the Bharatiya Janata Party (BJP) will fall short of gaining a clear majority in Karnataka assembly election.

The rupee weakened past 68-mark first time since January 2017, while the 10-year bond yield hit a three-year high.

The latest trend in Karnataka election results showed the Bharatiya Janata Party (BJP) winning nearly 105 seats—short of 112 halfway mark needed to form government. The Siddaramaiah led-Congress party and Janta Dal (Secular), or JD(S), are leading in 115 seats, according to Mint.

Congress said it will extend support to the JDS in forming the next government in Karnataka.

The home currency closed at 68.11 a dollar—a level last seen on 24 January 2017, down 0.86% from its previous close of 67.52. The rupee hits a low of 68.14 a dollar.

The 10-year bond yield ended at 7.905%—a level last seen on 18 May 2015, from its previous close of 7.825%. Bond prices and yields move in opposite directions.

Earlier trends indicated, BJP was leading in 112 seats, according to the Election Commission of India’s website. The Congress party, was ahead in 66 seats. Janata Dal (Secular), was ahead in 40 seats in the state.

Traders were also cautious due to the recent data that showed higher inflation fearing rate hike by Reserve Bank of India earlier than expected.

“One known unknown uncertainty is over for the market sentiments, however external perils are still bigger headwinds", said Soumyajit Niyogi, associate director, India Ratings and Research Pvt. Ltd .

Consumer price inflation rose 4.6% in April faster than the 4.4% of Bloomberg consensus. Wholesale price index (WPI)-based inflation shot up 3.18% in April from a year ago higher than 2.9% median estimate in a Bloomberg survey of 28 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 25bp increase in August. With another move likely in 4Q18, we see room for cumulative 50bp 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.

Analysts also fear that government may not be able to stick to its fiscal deficit target for the year due to surge in crude oil prices and expectations that it may adopt populist measures ahead of the general election next year.

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