In a very surprising move, which rattled the India Inc., RBI Governor Raghuram Rajan has announced a hike of 25 basis points in the repo rate, making things difficult for the banks. The decision triggered an immediate fall in the market and Rupee. The reverse repo rate has been hiked by 25 basis points to 6.5%.
The BSE Sensex crashed by over 600 points as soon as the decision was announced, but recovered by around 180 points at the later stage. The Rupee too dropped the gain and declined to above 62 level against the US Dollar.
The repo rate is the rate at which banks borrow short term money from the Reserve Bank. After the hike, it now stands at 7.5 per cent. The Cash Reserve Ratio (CRR) has been kept unchanged.
The RBI also took another decision, which may see a fall of Rupee against the USD. The banks will now have to meet 95 per cent of their CRR on a daily basis instead of 99 per cent.