Sensex tumbles 383 points after RBI surprises with rate hike

The benchmark S&P BSE Sensex fell 383 points today, the most in three weeks, after RBI Governor Raghuram Rajan unexpectedly raised a key interest rate to combat inflation and partially rolled back liquidity tightening measures.
Realty, bank and auto stocks fell on concern higher interest rates would make loans more expensive and reduce their business. ICICI Bank and HDFC Bank together contributed more than 120 points to the Sensex's fall.
The RBI raised the short-term policy repo rate to 7.5 per cent from 7.25 per cent, saying inflation had to be lowered to more tolerable levels. The move may increase interest rates on home and auto loans.

To ease liquidity, the marginal standing facility rate, at which banks borrow from the RBI, was cut to 9.5 per cent from 10.25 per cent and the minimum daily maintenance of the cash reserve ratio was lowered to 95 per cent.
The 30-share Sensex, which initially moved in a narrow band, plunged 595 points to 20,051.43 after the rate hike. It recovered some ground on selective buying by institutional investors to end at 20,263.71, a fall of 382.93 points or 1.85 per cent. The index had declined 651 points on September 3.
"Between the decision to control inflation as well as augment growth pace, the repo rate has been hiked," said Rakesh Goyal, senior vice president at Bonanza Portfolio Ltd. "This came as a big negative surprise as most investors and experts were expecting that status quo shall be maintained."

The broader 50-stock CNX Nifty index on the National Stock Exchange dipped by 103.45 points, or 1.69 per cent, to 6,012.10. The MCX Stock Exchange's SX40 index ended at 12,026.41, down 205.69 points.
The Sensex surged 684.48 points to an almost 3-year high yesterday after the US Federal Reserve refrained from easing its stimulus programme, reducing fears of an immediate outflow of capital from assets in emerging markets, including India.
The CII said it was disappointed with the rate hike as companies are reeling under the pressure of high capital costs and low availability in a tight liquidity situation.