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Sensex plunges 792 pts, rupee hits 74/$ as RBI holds rates

Market continued to be under heavy selling pressure after it hit record high


The MPC’s decision to stand pat is a clear signal that inflation remains the anchor of monetary policy. Interest rates will not be used to manage the currency, but the MPC will respond to the inflationary consequences of depreciation.

Currently, although higher oil prices and a weaker currency add to near-term cost pressures, the RBI acknowledged the expected inflation undershoot on lower food inflation and tighter financial conditions. The pause also gives it a chance to wait and observe the impact of the hikes already delivered. Lastly, the change in its stance indicates the MPC remains ready to hike, if inflation pressures become more adverse.

Overall, an impending growth slowdown due to a significant tightening of financial conditions, 50bp in cumulative hikes already in place and the need for RBI to allow lagged effects of policy transmission to become apparent, we expect rates to remain unchanged over our forecast horizon.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said "The RBI had hiked the policy rates by 50 bps in the previous two policy reviews. Despite global and domestic macro-economic headwinds of rising interest rates in the US, rising crude prices, threat of crude oil fuelled inflation, weaker currency and FII outflows, RBI has paused rate hikes for now. While we are in a rising interest rate cycle now, the pause will provide a temporary relief to the home buyer sentiment and support the festive season demand."

Market Closing: Bears took complete control of Dalal Street on Friday as more than Rs 4 lakh crore worth of wealth eroded in single day.

The 30-share BSE Sensex was down 792.17 points or 2.25 percent to close at 34,376.99 and the 50-share NSE Nifty fell 282.80 points or 2.67 percent to 10,316.50.

About three shares declined for every share rising on the BSE.

Final capitulation started in index heavyweights suggested that it is a brutal fall. Reliance Industries fell over 6 percent.

Bajaj Finance, Indiabulls Housing Finance and DHFL were down over 9 percent. Maruti Suzuki, HDFC, Yes Bank and ICICI Bank crashed while TCS and Infosys bucked the trend on rupee fall.

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