After back-to-back hike since June, the Reserve Bank of India (RBI) on Friday kept interest rates unchanged, surprising markets that had expected a rate hike to support tumbling rupee and combat inflationary pressures from high oil prices.
The RBI decision struck a blow for the rupee and stock markets, with the rupee skidding by 18 paise to finish at a fresh lifetime low of 73.76 against the US dollar after falling below 74 mark, and the BSE Sensex plunging 792.17 points to end at a near six-month low of 34,376.99, while the broader NSE Nifty dropped 282.80 points to 10,316.45.
With five of its six members voting for a status quo, RBI’s monetary policy committee left repo rate at 6.50 per cent and changed policy stance to “calibrated tightening” from “neutral”, which RBI Governor Urjit Patel said meant there would be no rate cut in the current cycle.
Bankers have rued the RBI’s unexpected decision. “This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence,” HDFC Bank chief economist Abheek Barua said.