Stock markets staged a strong rebound on Wednesday as worries over the tensions between the RBI and the Centre eased. The BSE Sensex rallied over 550 points, helping investor wealth to soar by Rs 1.92 lakh crore.

The recovery followed a statement by the finance ministry that the RBI’s autonomy was essential. It was bolstered by reports that the central bank will hold a board meeting on November 19 where some of the contentious issues may be discussed.

The rupee, which had plunged to the day’s low of 74.14 as investors turned nervous over reports of rift between the RBI and the government, also pared some of the losses to settle at 73.95 against the dollar, down 27 paise, or 0.37 per cent.

While the stock markets had ignored a strong speech by RBI deputy governor Viral Acharya where he stressed on the autonomy for central banks, nervousness creeped in after reports said that the Centre has used Section 7 (1) of the RBI Act on certain unresolved issues. The section gives the government powers to issue direction to the central bank governor on matters of public interest.

The Telegraph

The worries intensified after senior officials from the finance ministry did not deny using this power (which has never been used). Making matters worse was the buzz that Urjit Patel may resign if the government uses this section to issue a specific direction to the central bank.

This was reflected in the movement of the benchmark index. The 30-share Sensex, which opened higher at 33963.09, hit an intra-day low of 33587.24, a drop of almost 304 points. However, it soon rebounded after North Block said in a statement that the RBI’s autonomy is an essential governance requirement.