Not belying the expectations of senior economists, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) retained the repo rate at 6.50 per cent. The repo rate is the rate at which the RBI lends to the commercial banks.
Announcing the decision of the MPC after its three-day deliberations, RBI Governor Shaktikanta Das said on Thursday that the committee decided to keep the repo rate at 6.5 per cent.
The MPC also decided not to change its stance from 'withdrawal of accomodation'.
The MPC met on February 6-8.
BSE Sensex tanked more than 600 points after RBI announcement of credit policy with banks leading the fall.
Sensex was trading at 71,523.08 points down by a massive 628.92 points or 0.87 per cent.
Axis Bank, ICICI Bank, Nestle are down more than 2 per cent. The private banks index is down more than 1.5 per cent. Au Bank is down 2 per cent, Kotak Mahindra Bank is down 2 per cent.
FMCG stocks are down with the index falling 1.2 per cent. Tata Consumer is down 2 per cent, Britannia is down 2 per cent, Jyothy Labs is down 3 per cent.
Suman Chowdhury, Chief Economist and Head - Research, Acuité Ratings & Research said it was no surprise that RBI MPC decided to keep the status quo on the interest rates for the sixth consecutive time. However, RBI continued to sound hawkish as against the market expectations and has not provided any indication of the timing of the change in monetary stance from "withdrawal of accommodation".
Chowdhury said given the tone of the MPC statement and the expectation of growth buoyancy, we believe that the likelihood of any rate cut by RBI has significantly reduced over the next six months.
"In our opinion, the short term rates will continue to remain high in the near term. We also expect bank deposit rates to show an increase by 25-50 bps, given the continuing gap between credit and deposit growth," said Chowdhury.
Vinod Nair, Head of Research at Geojit Financial Services, said the domestic market exhibited cautious range-bound movement on Wednesday, despite robust PMI data and favourable global cues ahead of the RBI policy meet.
While no change in stance is anticipated, RBI's commentary on any hints regarding potential rate cuts and improvements in liquidity will be closely monitored.
(With inputs from IANS)