Sensex, Nifty slump over 2% after RBI’s rate hike surprise
RBI increased the lending rate by 40 basis points to 4.40% to contain inflation
MUMBAI: Equity markets fell sharply in late afternoon trade on Wednesday, with the Sensex and Nifty diving over 2% each after the Reserve Bank of India (RBI) in a surprise move hiked the benchmark lending rate to 4.40% to contain inflation.
The 30-share BSE benchmark tumbled 1,306.96 points or 2.29% to settle at 55,669.03. During the day, it plummeted 1,474.39 points or 2.58% to 55,501.60.
The NSE Nifty tanked 391.50 points or 2.29% to finish at 16,677.60.
The RBI increased the benchmark lending rate by 40 basis points (bps) to contain inflation, which has remained stubbornly above the target zone of 6% for the last three months. One basis point is 0.01%.
The decision follows an unscheduled meeting of the Monetary Policy Committee (MPC) with all six members unanimously voting for a rate hike while maintaining the accommodative stance.
“The MPC’s decision, in an unscheduled meeting, to raise the repo rate by 40 bps and cash reserve ratio by 50 bps is a surprise as it came on day the LIC IPO opened. MPC’s proactive move is justified from the perspective of inflation management, but the timing leaves a lot to be desired. The above 1,000 point crash in Sensex has soured the sentiments on the opening day of India’s largest IPO,” said V.K. Vijayakumar, chief investment strategist at
Geojit Financial Services.
The MPC’s action comes in the wake of concerns that RBI may have underestimated inflation and is behind the curve in changing its monetary policy stance, said
Unmesh Kulkarni, managing director, senior advisor, Julius
Baer India.
“The markets have obviously been taken by surprise, and the 10-year benchmark g-sec yield jumped intraday to 7.40%. Given the enhanced government borrowing calendar this year, Reserve Bank of India has a tough job at hand, to manage the market’s expectations of yields while seeing the weekly auctions through in a non-disruptive manner,” he noted.
In the Sensex, Titan, Bajaj Finserv, Bajaj Finance, IndusInd Bank, HDFC Bank, RIL, Asian Paints, Maruti and Dr Reddy’s were the prominent losers. However, PowerGrid, NTPC, and Kotak Mahindra Bank closed in the green.
As many as 2,548 stocks declined, while 826 advanced and 101 remained unchanged.
Markets in Seoul and Hong Kong settled in the red. Bourses in Europe were also trading lower in the afternoon session.
Stock exchanges in the US surged in trade on Tuesday.
Meanwhile, international oil benchmark Brent crude jumped 3.12% to $108.3 per barrel.
Foreign institutional investors offloaded shares worth ₹1,853.46 crore on Monday, according to stock exchange data.