Friday, September 20, 2013

Sensex down over 500 points in noon deals

Markets slumped on Friday wiping off most of previous day gains after the Reserve Bank of India stunned the market by hiking repo rate by 25 basis points to 7.5% citing inflationary pressures. The central bank also announced sharp cut in MSF (Marginal Standing Facility) rate by 75 basis points to 9.5%

At 1400 hrs, the 30-share Sensex was down 505 points or 2.45% at 20,140 and the 50-share Nifty was down 153 points or 2.5% at 5962.

In the broader markets, the midcap index slumped 1.5% and the smallcap index was down 1% in the afternoon deals.

On Thursday, the Sensex ended 684 points higher at nearly 3-year high recoding its biggest single day gains since May 2009 in absolute terms. The 50-share Nifty added 216 points at 6,116 levels.

Repo rate is the rate at which RBI lends to commercial banks generally against government securities. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit.

What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence. Although better prospects of a robust kharif harvest will lead to some moderation in CPI inflation, there is no room for complacency, the RBI said.
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