Sensex tanks over 500 pts as RBI shocks markets with rate hike

The Indian markets fell as soon as the Reserve Bank of India unexpectedly hiked its policy rate by 25 bos to 7.5 percent.

At 11.55 am, the BSE Sensex is at 20133.23, down 513.41 points ot 2.49 percent, while the Nifty is at 5954.55, down 161 points, or 2.63 percent.

The top loser in the BSE is the realty index. Indiabulls Real Estate falls nearly 10 percent, Sobha Developers and DLF down more than 8 percent.

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BSE banking index is down 6.5 percent.

Banks are among the top Nifty losers – IndusInd Bank down nearly 9 pct, PNB down 8.6 pct, Bank of Baroda down 7.3 pct, Axis Bank down 6.6 pct, HDFC Bank down 6.3 pct.

Tushar Pradhan, Chief Investment Officer, HSBC Asset Management told CNBC-TV18 in an interview, “It is quite a surprise for the markets given the way we were thinking–they were expecting a rate cut.” However, he said that the RBI’s move is very balanced.

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“We are in an economic situation which is not exciting. I hope the markets get used to the normal,” he said.

In the currency market, the rupee is trading at 62.45 per dollar.

The central bank also eased the pressure on liquidity in the banking system by cutting the marginal standing facility rates for banks to 9.5 percent from 10.25 percent and also cut banks’ daily cash reserve ratio requirement to 95 percent of deposits from 99 percent.

The RBI in its policy review said that output gap is widening and growth is trailing below potential. It also noted that Wholesale inflation (WPI) for 2014 will be higher than expected without an apt RBI policy.