The rupee plunged 32 paise to hit a 13-month low of 66.12 after the minutes of the Reserve Bank of India’s Monetary Policy Committee meeting suggested that the panel is likely to take a more hawkish tone starting as early as June. Government bond prices dropped sharply and yields rose on heavy selling pressure from banks and corporates as rising crude oil prices, strong dollar and India’s trade deficit weighed on the forex and money markets. Bank stocks fell up to 7 per cent.

The 7.17 per cent 10-year benchmark bond maturing in 2028 went down to Rs 96.29 from Rs 96.8625, while its yield rose by 9 basis points to 7.72 per cent from 7.63 per cent. “The market is expecting a rate hike latest by August this year. It can happen in June if crude prices and inflation rise further. There’s a big divergence in what the RBI released as monetary policy statement on April 5 and the MPC minutes released on Thursday,” said an analyst.

Stock markets also came under selling pressure with bank stocks facing the heat. Shares of Canara Bank dived 7.08 per cent, Bank of India 6.19 per cent, Andhra Bank 5.54 per cent, and Allahabad Bank 3.57 per cent on the BSE. Among others, YES Bank fell 3 per cent, PNB 2.60 per cent, ICICI Bank 2.49 per cent, SBI 1.97 per cent, AXIS Bank 1.49 per cent, Federal Bank 1.43 per cent, Bank of Baroda 1.14 per cent and IndusInd Bank 1.10 per cent on BSE. The Sensex closed 11 points lower at 34,415.58.

The RBI’s policy panel has flagged several concerns, including an increase in minimum support prices for farmers, house rent allowance (HRA) revision and high and volatile crude oil prices, indicating a tightening of the policy regime in the coming months, the minutes of the MPC meeting released by the RBI on Thursday showed. The rupee opened weak by 25 paise at 66.05 at the interbank forex market and hovered in a range of 66.10 and 65.98 before ending at 66.12, down 32 paise. “Higher crude prices, rising US rates and breakevens, stronger USD against majors, hawkish RBI MPC minutes are all weighing on the rupee at this point. The RBI minutes were hawkish as opposed to the actual policy statement,” said Abhishek Goenka, CEO, IFA Global.

Friday’s was the lowest closing level of the rupee since March 10, 2017, when it had settled at 66.60 against the US dollar. “Indian rupee fell for a fifth session as the RBI minutes revealed that RBI’s tone is more hawkish than what markets had previously gauged. FII selling and firm oil adds to pressure on rupee, while US dollar is also not expected to yield much ahead of May’s FOMC meet,” Anand James, chief market strategist at Geojit Financial Services said.

The rupee has dropped by more than 1 per cent in April and by 3.52 per cent this year so far.

On Friday, the 6.68 per cent government security maturing in 2031 dipped to Rs 89.7525 from Rs 90.17, while its yield moved up to 7.93 per cent from 7.88 per cent. The 6.79 per cent government security maturing in 2027 declined to Rs 92.92 from Rs 93.2950, while its yield gained to 7.90 per cent from 7.84 per cent. The 8.20 per cent government security maturing in 2022, the 6.84 per cent government security maturing in 2022 and the 8.15 per cent government security maturing in 2022 were also quoted lower to Rs 101.88, Rs 96.90 and Rs 101.80 respectively.

RBI Deputy Governor Viral Acharya and Executive Director Michael Patra, members of the 6-member MPC, turned hawkish and spoke about the withdrawal of accommodation. The MPC, which kept the Repo rate unchanged at 6 per cent in the April review, noted that there are several uncertainties surrounding the baseline inflation path. “I have moved substantially closer to switching from the neutral stance to beginning the process of withdrawal of accommodation. This is in spite of the softening of inflation in recent prints,” Acharya said.