Stock markets today declined rapidly by 2.7 per cent soon subsequent to the Reserve Bank's advocating war policy announcement in which it moved up the repurchase agreement rate by 0.25 per cent. In fact, the stock market barometer BSE Sensex, which was trading weak in the morning trade, crashed over 559 points or 2.7 per cent to 20,087.44 soon after the mid-quarter policy by RBI.
RBI Governor Raghuram Rajan in his maiden policy review, nevertheless ensured with effortlessness liquidity though the reduction in rate at which banks borrow by 0.75 per cent was lower than the anticipation. The repurchase agreement rate rate or the short term lending rate has been increased by 25 basis points to 7.5 per cent from 7.25 per cent accompanying instantaneous effect. The National Stock Exchange's Nifty cause to fall 2.48 per cent or 152 points to 5,963.65. The forex market also reacted negatively and the rupee depreciated 69 paise to 62.46 to a US dollar. The markets had mounted to a three-year high yesterday subsequent to the US Federal Reserve unexpectedly left its stimulus programme unchanged, easing alarm of capital outflows.
In spite of market expectation of status quo policy from Rajan, the RBI today delivered an advocating war policy characterized by focus on anchoring inflationary expectation. Chief Strategist at SMC Global Securities Jagannadham Thunuguntla said that inflation remains the top priority of RBI and will remain the case. Rate hike came absolutely in a surprise form to the market. It is a matter of time that most of the gains which were build up by the market in the last 15 days will be back.