MUMBAI, India -
Indian shares fell sharply Tuesday on worries that the cost of home and car loans would soar after the central bank hiked key interest rates.
The Bombay Stock Exchange's benchmark 30-stock Sensex fell 558 points, or 3.9 percent, to 13,792 points. In midday trade, the Sensex slipped more than 600 points, or 4.2 percent.
On the broader National Stock Exchange, the 50-company S&P Nifty index declined 3.3 percent to 4,190 points.
India's central bank raised key interest rates in its quarterly monetary policy review to rein in inflation that is currently at nearly 12 percent.
The Reserve Bank of India increased the cash reserve ratio, or the share of deposits banks must keep with the central bank, to 9 percent from 8.75 percent. The bank also raised the repurchase rate, the rate at which it makes short-term loans to commercial banks, to 9 percent from 8.5 percent.
Reserve Bank of India Governor Y. Venugopal Reddy said policy actions were aimed "to bring down the current intolerable level of inflation to a tolerable level."
The goal was to bring inflation down from the current 11-12 percent level to close to 7 percent by March next year, he said.
The bank also lowered growth projections for the economy to 8 per cent from the earlier 8-8.5 per cent.
But shares of banks and automobile firms slipped on concerns that personal, home and car loans would cost more.
HDFC Bank was off 8.7 percent, followed by ICICI Bank Ltd. that dropped 8.5 percent and State Bank of India fell 6.8 percent.
Automobile firms such as Maruti Suzuki India Ltd. declined 7 percent and Mahindra & Mahindra Ltd. fell 5.5 percent.
Experts said curbing inflation would be the dominant factor over the next few months.
"Controlling inflation is now the sole criterion for the Reserve Bank in addition to anchoring future inflation expectations," said Waqar Naqvi, chief executive officer of Taurus Mutual Fund. "Growth takes a back seat for now."
