Mumbai: The Indian rupee extended its losses on Wednesday against the US dollar after ruling Bhartiya Janata Party (BJP) suffered a setback in the three state elections, and also after the government announced a former bureaucrat as a central bank chief. At 9.15am, the rupee was trading at 72.10 a dollar, down 0.33% from its Tuesday’s close of 71.87. The currency opened at 72.02 a dollar. The 10-year government bond yield stood at 7.475% from its previous close of 7.528%. Bond yields and prices move in opposite directions.

The government on Tuesday announced Shaktikanta Das as the governor of the RBI a day after Urjit Patel resigned. Analyst expects that the markets focus will shift now towards assessing continued central bank independence after two governers in a row stepped aside before their terms ended.

As per the latest election trends, BJP lost, Madhya Pradesh, Rajasthan and Chhattisgarh to Congress.

“The results are worse than expected for the incumbent BJP and will play an important role in framing the strategies of both BJP and its opposition into the 2019 elections. From BJP’s perspective, the three big states are agrarian and could therefore raise concerns about agrarian distress being a real voter issue", said Nomura research in a note to its investors.

“The results will also reinvigorate opposition parties and embolden the formation of a grand coalition of Congress-led disparate regional parties. We would be wary of extrapolating the state elections result to national elections, as these are fought on local issues and PM Modi maintains an overwhelming popularity over his competitors. However, we do expect talks of a grand coalition to raise political uncertainty going into the 2019 general elections", Nomura report added.

The benchmark Sensex rose 0.35% or 121.65 points to 35,271.66 points. Year to date, it has rose 3.21%.

So far this year, the rupee has declined 8.7%, while foreign investors have sold $4 billion and $7.25 billion in the equity and debt markets, respectively.

Analyst will awaiting consumer price inflation and index of industrial data due after 5.30pm on Wednesday. CPI for November is expected at 2.53% according to Bloomberg poll against 3.31% a month ago. IIP estimated at 6% for October against 4.5% last month.

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