In an unexpected move, that defied expectations of most economists and analysts, the Reserve Bank of India (RBI) today held interest rates steady. The immediate result of the decision was that the rupee plunged past the 74 levels mark to hit a new historic low of 74.10 to the dollar.
The currency had closed at 73.59 on Thursday.
It was widely expected that the country's central bank would hike the repo rate by 25 basis points, with some analysts pointing to a hike of even 50 basis points.
Stock markets came under intense selling pressure as the rupee plunged past the 74 levels mark for the very first time, though holding interest rates steady is always good news. The Sensex was seen trading with losses of near 540 points at 3.05 pm, following the move.
A majority of the 6-member Monetary Policy Committee (MPC) recommended keeping interest rates on hold. There are worries that the further sharp fall in the rupee, might now lead to negating all the cut in fuel prices effected on Thursday, thanks to the falling rupee.
"The decision of the MPC is consistent with the stance of calibrated tightening of monetary
policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting
growth," the RBI said in its release.
Most analysts and economists had expected the country's central bank to hike policy rates, keeping in mind worries that falling crude may lead to higher inflation.
However, the RBI has now changed its stance, which means we could now see gradual increase in interest rates in the coming quarters.