After Reserve Bank of India (RBI) Governor Raghuram Rajan's decision to quit office in September, the rupee slipped to its weakest in nearly a month while stocks fell and bond yields rose.
The rupee was trading at 67.47 to the dollar after hitting 67.70 to the dollar, its weakest since May 24. The currency had closed at 67.08/67.09 to the dollar earlier on June 17.
Rajan's unexpected decision comes at a time when investors had been bracing for heavy volatility from global markets as Britain is due to vote on Thursday on whether to leave the European Union.
The focus will now shift to Rajan's successor and analysts said they did not expect any long-term impact to markets as long as his replacement is seen as credible and somebody who can defend the RBI's autonomy at a critical juncture in its history.
Market expert Sunil Shah said that the markets had started showing signs of recovery already.
"Well, what has happened is that market was expecting Raghuram Rajan to get a second term but contrary to the market belief, Mr. Raghram Rajan made his intention very clear that he is not available for the second term. So, obviously the first initial reaction when the market opened, it was a gap down but it has recovered since then. Now BSE Sensex, (as) I am talking to you, it is 70 points plus," said Shah.
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He added the reaction of foreign portfolio investors will only be known eventually.
Rajan has been popular with foreign investors for his efforts to tackle inflation and helping to rescue India from its worst crisis in more than two decades when he took the helm in 2013.
The benchmark 10-year bond yield was up 3 basis points to 7.53 percent.
The one-year OIS rate was bid at 6.71-6.73 per cent while the five-year OIS rate was bid at 6.84 per cent, traders said. The one-year swap closed at 6.68 per cent and five-year at 6.77 percent on Friday.
The Nifty was flat after falling as much as 0.77 percent.
Several names are doing the rounds for the RBI Governor's post. As per reports, the probable candidates are Vijay Kelkar, Rakesh Mohan, Ashok Lahiri, Urjit Patel, Arundhati Bhattacharya, Subir Gokarn and Ashok Chawla.