NEW DELHI: On a day, the Reserve Bank of India (RBI) went against the Street expectations to keep the repo rate unchanged at 6.50 per cent,
rupee plunged below the 74-mark against
US dollar and
Sensex tanked more than 900 points in intra-day trading.
On Friday evening, as RBI governor Urjit Patel and his monetary policy committee (MPC) colleagues were reading out the policy statement, the currency and equity market investors found themselves amid a mayhem.
Against Street expectations, RBI keeps repo rate unchanged at 6.50 per cent
RBI, in its October monetary policy meet, maintained a status quo and kept the repo rate unchanged at 6.50 per cent. The reverse repo rate has also been kept unchanged at 6.25 per cent. The central bank's move came against the Street expectations as most of the experts had predicted a 25 basis points (bps) rate hike due to a weakening rupee and inflationary pressure due to high crude oil prices.
Despite refraining from what would have been a third straight rate hike, the central bank changed its stance from 'neutral' to 'calibrated tightening'. Urjit Patel categorically said that the changed stance means that the central bank has only two options - a rate hike, or status quo -- in the current rate cycle. Besides, RBI also revised its inflation projection on the upside.
The markets sensed the change in tone of the central bank and reacted sharply. The 30-share BSE Sensex which was already trading some 400 points in the red around 3 pm, plunged a further 550 points in the span of half an hour. The index saw a jerky recovery at the fag-end of the trading session, closing at 34,376.99, down 792.17 points.
The broader 50-share NSE
Nifty too lost a staggering 2.67 per cent to close at 10,316.45.
Brokers said investors offloaded their positions, tracking a selloff in global markets as US Treasury surged to multi-year highs on robust economic data and comments from the Federal Reserve, sparking fears of accelerating inflation.
Almost simultaneously, the currency markets too got a beating as the rupee plunged below the 74-mark, hitting a new low of 74.20 against the US dollar, slipping as much as 63 paise. Investors remained concerned over sustained foreign capital outflows and fears of widening current account deficit in the wake of soaring crude oil prices. While addressing the media after the policy meet, RBI governor Urjit Patel attempted to soothe nerves on the rupee front, saying that the currency's fall is moderate in comparison to emerging markets peers.
Patel while addressing a press conference also touched upon the debt fiasco in IL&FS, saying that the RBI and government made timely intervention in the conglomerate, The bears in the equity markets however did not share the confidence as investors deserted banking and financial stocks, with Nifty PSU Bank and Nifty Financial Services sub-indices tanking as much as 4.38 and 2.53 per cent, respectively. In fact, all sub-indices, with the exception of Nifty IT finished in the red and even blue-chip stocks went downhill, leaving investors with virtually no space to hide.
