Reserve Bank of India's shock and awe tactics have floored the markets - both rupee and Sensex swooned in response. RBI Governor Urjit Patel today announced that the MPC, by a 5:1 decision, had opted for a status quo on repo rate. This flew in face of most analysts who were expecting at least a 25 bps hike from the current 6.50%. Some were even speculating about a 50 bps hike! However, even as the oil price shock is set to continue, RBI has chosen not to take action. The move has been dubbed as 'risky' by some, saying that a rate hike was the need of the hour. 

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In his reaction to the RBI announcement, Deepak Jasani, Head Retails Research at HDFC Securities, said, "Contrary to most expectations, the RBI’s MPC chose to keep repo and reverse repo  rates unchanged  at  its meet on October 05, 2018. It seemed to be influenced  by risks to future growth from tighter financial conditions and encouraged by softer inflation projections." 

Significantly, RBI is choosing to walk on a path less travelled by its peers abroad and this may not be in the interest of the Indian currency. Jasani explained, "The MPC chose to go  contrary to the stance of most other Central Banks which may not be conducive  for the value of Rupee."

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To balance the equation somewhat, the RBI did take a step to ensure its decision does not boomerang too badly going forward. Jasani said, "However, the MPC changed its stance from 'Neutral'  to  'Calibrated  Tightening'." This indicates that future upward revisions may very well be possible.  

The  stock market, which would in normal case be happy with no hike, resumed its fall after a small bounce, as if they were waiting to sell-off post the event, whatever be the outcome. 

Jasani concluded, "Markets would closely watch the crude oil price trend and interest rates trajectory in the US for clues to reverse its current trend.'