India's Central Bank sharply hiked key rates by 50 points, making the repurchase rate and the interest rate on short term borrowing 8 percent from 7.5 percent and reverse repurchase rate or interest paid on short term lending, raised to 7 percent from 6.5 percent
The rate hikes were affected by Reserve Bank of India (RBI) Governor D. Subbarao during the first quarterly review of the apex bank's monetary policy for this fiscal conducted at his headquarters in Mint Road here.
While the rate hike was expected, the quantum of increase shocked the markets, which saw the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) dip to 18,588.64 points, to log a loss of 282.65 points or 1.5 percent over the previous close.
The situation was no different at the National Stock Exchange, where the broader S&P (Standard and Poor's)CNX Nifty was ruling at 5,591.25 points, with a fall of 89.05 points, or 1.57 percent. All sector-specific indices at the two bourses were also down.
On growth, the Reserve Bank governor said amid a slowdown in the factory output growth, the robust export performance should bode well, but the performance of monsoon so far could exert pressures on the yields of coarse grains, pulses, oilseeds and cotton. The rates will only add to the woes of borrowers but then there is no escape.