RBI Monetary Policy impact: Sensex drops over 300 pts, Nifty below 100 pts on status quo; policy repo rate stands at 6.50%

The benchmark indices Sensex and Nifty both reacted in a massively negative manner after the Reserve Bank of India (RBI) decided to maintain status quo in December policy. After dropping by over 300 points within few minutes of RBI policy announcement, the Sensex was trading at 35,880.51 down by 254 points or 0.70%, whereas the Nifty was trading at 10,773.95 below 95.55 points or 0.88% at around 1442 hours. The Nifty has plunged by over 100 points within seconds of RBI policy. 

There were barely any gainers on Sensex with Hindustan Unilever trading at Rs 1840.70 per piece up by 1.79% and HDFC at Rs 1962.70 per piece above 1.21%.

Other companies like HDFC Bank, Adani Ports, Asian Paints and Reliance Industries made a gradual increase ranging between 0.04% to 0.30%. 

Meanwhile, losers list had a long line of companies with Sun Pharma taking top spot by plunging nearly 6% trading at Rs 417.50 per piece. Sun Pharma was followed by Vedanta at Rs 198.35 per piece below 3.78%, Tata Motors at Rs 169.70 per piece below 3.41%, Tata Steel at Rs 169.70 per piece down 3.15% and Mahindra & Mahindra at Rs 719.10 below 3.13%. 

As expected the Reserve Bank of India today decided to keep policy  repo rate unchanged at 6.50%. Consequently, the reverse repo rate under the LAF remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

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% within a band of +/- 2%, while supporting growth. The main considerations underlying the decision are set out in the statement below.

RBI is an inflation trajectory cbank, and every policy stance revolves around the performance of Consumer Price Index (CPI) or retail inflation, which in latest month has softened. Retail Inflation in October 2018 month came in at 3.3% lower compared to 3.8% in September 2018 and 3.6% a year ago same month. Lower inflation was an outcome of food inflation which continued to decline largely led by sharp contraction in pulses, vegetables and fruits, fuel inflation continued to rise, tracking international oil prices.