After surprise RBI move to hold rates, Re breaches 74 vs dollar Sensex sinks

RBI, Bank, Finance, Monetary, Business, Bank Of India, Oriental Bank, Union Bank

The Reserve Bank of India (RBI) on Friday kept interest rates unchanged in a surprise decision. The rupee reacted and breached 74 against the dollar and the  BSE Sensex closed 792.17 points down at 34,376.99, while the Nifty 50 ended 282.80 points lower at 10,316.45.

The shares markets were also mainly by oil stocks. Shares of oil marketing companies—HPCL, BPCL and IOC—slumped after the government asked the companies to absorb Rs 1 cut in fuel prices.

The rupee declined to 0.6% after the RBI decision, hitting a new low of 74.20 against the dollar soon after the RBI announced its monetary policy, thus taking its drop against the dollar to 14% this year and making it the worst-performing major currency in Asia.

The six-member monetary policy committee led by Governor Urjit Patel voted 5-1 to keep the repo rate or the key lending rate at 6.50%. Patel said that the rupee fall is moderate in comparison to emerging markets peers.

Anticipation of a rate hike had increased in the past month as oil prices climbed, the rupee’s slide accelerated and concerns on liquidity emerged. Experts had largely expected the central bank to hike the repo rate by 25 basis points or 0.25 per cent. However, five of the six panel members voted to leave the rate unchanged.

The reverse repo rate or the rate at which RBI borrows from commercial banks also remained unchanged at 6.25 per cent.

The RBI had last raised interest rates in two successive policy reviews in August and June this year.

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