Sensex sinks 792 pts as RBI keeps policy rate unchanged

Source: The Hitavada      Date: 06 Oct 2018 09:28:54




THE BSE Sensex plunged 792 points on Friday to end at a near six-month low of 34,376.99 after the RBI unexpectedly maintained status quo on the policy rate but changed its stance to “calibrated tightening” amid the rupee breaching the 74-mark. The central bank kept the interest rate unchanged at 6.5 per cent.

Sentiments were also bearish largely in tandem with a sell-off in global markets as US Treasury yields surged to multi-year highs on robust economic data and comments from the Federal Reserve, sparking fears of accelerating inflation, brokers said. The Indian rupee on Friday crashed below the 74-level against the US dollar for the first time ever after the Reserve Bank kept its key policy rate unchanged.

The domestic currency was quoting 65 paise lower at 74.23 (intra-day) against the dollar soon after the RBI announced its monetary policy. The 30-share index remained in the negative zone through the session. Selling activity gathered momentum after the RBI kept rates unchanged but changed its stance to “calibrated tightening”. The benchmark hit a low of 34,202.22, before finishing 792.17 points, or 2.25 per cent down at 34,376.99.

This is its lowest closing since April 23 when it had finished at 34,450.77 points. The gauge had lost 1,356.98 points in the previous two sessions on rupee woes and boiling crude oil prices. The wider National Stock Exchange index Nifty too tanked 282.80 points, or 2.67 per cent to close at 10,316.45 points.

Intra-day, it hit a low of 10,261.90 soon after RBI’s policy announcement.The Monetary Policy Committee (MPC) voted 5:1 in favour of a status quo, with only Chetan Ghate voting for a 0.25 per cent hike.The MPC, headed by RBI Governor Urjit Patel, said that the recent excise duty cut on petrol and diesel will help contain inflation.

RBI maintained growth estimate at 7.4 per cent for current fiscal and projected retail inflation to rise to 3.8-4.5 per cent in October-March. Marketmen were expecting the six-member Monetary Policy Committee to go for at least a 0.25 per cent hike at the review.


Rupee slumps to all-time low



 THE rupee skidded by 18 paise to finish at a fresh lifetime low of 73.76 against the US dollar on Friday after the RBI unexpectedly kept the policy rate unchanged. The domestic unit crashed below the 74-mark for the first time ever in intra-day trade on persistent capital outflows and high crude oil prices. Markets were caught off guard as the Reserve Bank of India (RBI) maintained status quo on the benchmark interest rate. However, the central bank warned that rising oil prices and tightening of global financial conditions pose substantial risks to growth and inflation.

It also changed its policy stance to ‘calibrated tightening’ from ‘neutral’. Meanwhile, RBI Governor Urjit Patel on Friday reiterated that the domestic currency is still better than its emerging market peers and that the apex bank does not have a target for it.

“The rupee fall, in some respect, is moderate in comparison to several other emerging market peers,” Patel said at the customary post-policy press meet.“Our response to these unsettled conditions has been to ensure that foreign exchange market remains liquid with no undue volatility. There is no target or band around any particular level of exchange rate, which is determined by market forces demand and supply,” the Governor added.

 A majority of the analysts and bankers were expecting the six-member Monetary Policy Committee (MPC) to raise interest rate by at least 0.25 per cent, while the developments over the last few days, especially the weakness in the rupee, had led to speculations that it could be even as high as 0.50 per cent.

Equity markets racked up heavy losses for the third straight session.

 The BSE Sensex plunged 792.17 points to end at a near six-month low of 34,376.99, while the broader NSE Nifty dropped 282.80 points to 10,316.45. At the Interbank Foreign Exchange (Forex) market, the local currency opened higher at 73.56 a dollar against its previous record closing low of 73.58. It recovered to a high of 73.42, but failed to sustain the momentum and plunged to 74.23 after RBI’s policy announcement.It finally closed at 73.76, down by 18 paise or 0.24 per cent, marking its fourth straight session of decline. On Thursday, the domestic unit plummeted by 24 paise to end at 73.58.

“The rupee has extended losses as the RBI monetary policy meeting has clearly disappointed the street. Market was expecting at least 25 bps repo rate hike and measures to stabilise the rupee. Given the sell-off in the domestic equities and higher crude oil prices, the rupee is now expected to move towards 75-76 levels in next couple of sessions,” said Rushabh Maru - Research Analyst , Anand Rathi Shares and Stock Brokers. Brent crude oil prices were trading at USD 84.36 per barrel, showing a dip of 0.26 per cent.

India’s benchmark 10-year sovereign yield fell to 8.04 per cent.

Foreign institutional investors remained net sellers, offloading equities worth Rs 3,370.14 crore on Friday, provisional data showed. “Rupee was caught off guard and weakened beyond 74, after RBI surprised markets by keeping rates unchanged. Given the rising oil and trade tensions, traders will bet on exports going up, to curb further weakening in the currency,” said Anand James, Chief Market Strategist at Geojit Financial Services. Meanwhile, the FBIL set the reference rate at 73.5809 for the US dollar and 84.6975 for the euro. The pound sterling also pegged higher at 95.8877 and 64.59 for 100 Japanese yen.