In a surprise move, the Reserve Bank of India (RBI) on Wednesday increased the policy repo rate by 40 basis points to 4.40% with immediate effect. Addressing a press conference, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has unanimously voted to increase the policy repo rate by 40 basis points or 0.40%. The repo rate is the interest rate at which the RBI lends short-term funds to banks. Based on the assessment of the macroeconomic situation and the outlook, the Monetary Policy Committee voted unanimously to increase the policy repo rate by 40 basis points to 4.40% with immediate effect, Das said.
The decision was taken in the unscheduled meeting of the Monetary Policy Committee. “The MPC continues to be accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward,” the RBI Governor said. This is the first increase in the policy repo rate since May 2020.
Meanwhile, the Indian stock markets’ key indices, Sensex and Nifty, slumped by more than 2% on Wednesday after the RBI made the surprise announcement to hike policy repo rate by 0.40%. The 30-stock S&P BSE Sensex slumped 1306.96 points or 2.29 per cent to 55,669.03 points against its previous session’s close at 56,975.99 points. Earlier, the Sensex started the day on a positive note at 57,124.91 points and rose to a high of 57,184.21 points in the early morning trade.
However, the markets turned negative in the morning trade itself. The selling pressure intensified after the Reserve Bank of India (RBI) Governor Shaktikanta Das announced thatthe Monetary Policy Committee (MPC) has unanimously decided to hike the policy repo rate by 0.40% or 40 basis points to 4.40% with immediate effect. This is the first increase in the policy repo rate since May 2020 marking a reversal of the RBI’s monetary policy stance. The Monetary Policy Committee (MPC) decided to hold an off-cycle meeting on 2nd and 4th May, 2022 to reassess the evolving inflation-growth dynamics and the impact of the developments after the MPC meeting of April 6-8, 2022, Das said. Following the announcement, the Sensex tumbled to a low of 55,501.60 points. This is the third consecutive session of losses in the Indian equities market’s key indices. The Sensex had lost 84.88 points or 0.15% on Monday, the previous trading day. The broader Nifty 50 of the National Stock Exchange slumped 391.50 points or 2.29% to 16,677.60 points against its previous session’s close at 17,069.10 points. The index heavyweights Reliance Industries and HDFC Bank witnessed heavy selling pressure.