The 30-share Bombay Stock Exchange Sensex fell sharply, with investors anxious that the fall in the rupee and increase in crude-oil prices would further widen the trade deficit. There have been some traces of the central bank intervening in the foreign exchange market to support the currency, but not a lot. But, it failed to sustain the initial strength and fell back to breach the 74-mark.
Indian rupee hit a series of record lows since 1998 in the past two months, weakening to a fresh record low of 73.4025 on Wednesday.
The BSE Sensex plunged 792.17 points to end at a near six-month low of 34,376.99, while the broader NSE Nifty dropped 282.80 points to 10,316.45.
The market analysts were expecting a repo rate hike to push the value of rupee, which has weakened more than 13 per cent against the dollar so far this year. The finance minister said on Tuesday that the economy was adjusting "quite well" to higher US interest rates and the fall of the rupiah, asserting that many of its economic indicators were good.More news: 'It's A Very Scary Time For Young Men In America'
"Dollar-Rupee was once again saved by an alleged intervention from RBI". "Despite Government's plan to cut borrowing in H2FY19, yields continued to increase due to rate hike expectation from RBI".
Oil prices have reached four-year peaks as the market focused on upcoming United States sanctions on Iran while shrugging off the year's largest weekly build in U.S. crude stockpiles. Surge in the global prices of crude oil has been the major party spoiler; per barrel cost of crude has surpassed $80, making it costly for importing, thus leading heavy depreciation in the Indian currency.
In the bond markets, the yield on the benchmark 10-year bond jumped to 8.20% - the highest in three weeks.
The central bank kept the interest rate unchanged at 6.5 per cent. The $22.6 billion fall in the country's foreign reserves since the onset of currency market turmoil in April represents the largest capital flight from any Asian economy.
According to Madhavi Arora, Economist, FX and Rates, Edelweiss Securities said: "The RBI is clearly of the view that they should let underlying trade competitiveness improve gradually as the trade-weighted exchange rate acts as a natural stabiliser". A sharp rise in input costs, combined with rising pricing power, poses the risk of higher pass-through to retail prices for both goods and services, RBI said.