Monday morning trade session saw the BSE benchmark dropping by nearly 200 points after the Reserve Bank of India (RBI) conceded on keeping the same interest rates as announced in the mid-term monetary policy review.
The central bank resolved on keeping its cash reserve ratio (CRR) of scheduled banks unchanged at 4.75, while keeping its policy repo rate the same at 8.0 per cent. The reverse repo rate under the liquidity adjustment facility (LAF) will continue at 7.0 per cent, while the marginal standing facility (MSF) rate and the Bank Rate will stand at 9.0 per cent.
Soon after the policy announcement, the sensitive index tumbled 204.17 points to 16,745.12 at 11:30 a.m. Likewise, the Nifty index also dropped by 65.50 points down to 5,073.45. Rate sensitive stocks dropped, with banking and realty stocks dropping 2.6 percent and at 2.5 percent rate.
Amongst the major losers on the Sensex stock were HDFC Bank, ICICI Bank and SBI, whereas Tata Steel, Bajaj Auto, NTPC and Tata Motors performed best. Bank of Baroda, SBI, Real estate titan DLF were amongst the least performers on the Nift index.
RBI last cut its policy rates by 50 basis points in April. The on-going economic crisis on the global level led many to believe that the Bank may slash rates on interest and cash reserve ratio.
Despite the drastic fall, RBI said that an additional reduction in interest rates at this point make deepen inflationary pressures.
"RBI has increased export credit refinance facility, up from 15% to 50%, allowing banks to access additional 30,000 crore through that window. RBI says this is equivalent of 50 bps cut," George Cherian of ET Now said according to the Economic Times.
The government's inability to implement policies is mostly held accountable for the drop in markets, with the rupee sliding to an all time low. "Rates are headed lower, but cuts are going to be more unpredictable," said Sandeep J. Shah, CEO of investment advisory firm S a mpriti Capital said according to Business Standard.