Stock markets on Friday tanked by 2.7 percent soon after the Reserve Bank’s hawkish policy announcement in which it hiked the repo rate by 0.25 percent.

The stock market barometer BSE Sensex, which was trading weak in the morning trade, crashed over 559 points or 2.7 percent to 20,087.44 soon after the mid-quarter policy by RBI.

RBI Governor Raghuram Rajan in his maiden policy review, however, eased liquidity though the reduction in rate at which banks borrow by 0.75 percent was lower than the expectation.

The repo rate or the short term lending rate has been increased by 25 basis points to 7.5 percent from 7.25 percent with immediate effect.

The National Stock Exchange’s Nifty fell 2.48 percent or 152 points to 5,963.65.

The forex market also reacted negatively and the rupee depreciated 69 paise to 62.46 to a US dollar.

The markets had soared to a three-year high on Thursday after the US Federal Reserve unexpectedly left its stimulus programme unchanged, easing fears of capital outflows.

Notwithstanding market expectation of status quo policy from Rajan, the RBI today delivered a hawkish policy with focus on anchoring inflationary expectation.

“Inflation remains the top priority of RBI and will remain the case. Rate hike came absolutely in a surprise form to the market. It is a matter of time that most of the gains which were build up by the market in the last 15 days will be back,” Chief Strategist at SMC Global Securities Jagannadham Thunuguntla said.