Mumbai (PTI): The stock markets, which are already reeling under selling pressure, may react sharply on Wednesday after the Reserve Bank's decision on late Tuesday evening to hike its shot-term lending rate and the mandatory cash reserve for banks.

Brokers said markets, which have been on downward trend for the past five days in row, are likely to react sharply with interest-sensitive stocks like auto, realty, banks and consumer durables taking a hit as the RBI announcement of tightening money supply further may lead to harder interest rate regime.

Industry chambers also said RBI's decision to hike repo rate and cash reserve ratio will have adverse impact on the manufacturing sector.

FICCI said, "The move would impact the manufacturing sector which is already facing slackening due to the high interest rates."

With interest rates being set to go up, auto, realty and consumer durable companies are likely to see their sales dropping in the coming days which may keep investors away from those stocks, marketmen said.

Bank shares could be another casualty as higher interest rates may lead to lower volumes, impacting their bottom lines.

"Prime lending rate would go up by up to 50 basis points with the hike in CRR and repo rate," the country's second largest public sector lender Punjab National Bank Chairman K C Chakrabarty said.

"All the loans linked to the PLR like consumer loan, home loan, personal loan are bound to go up. At the same time, deposit rates would also be increased," he added.

Under relentless pressure to control inflation which touched 13-year high of 11.05 per cent, RBI today announced a hike in both short-term lending rate (repo) and mandatory cash reserve (CRR) for banks by 50 basis points each.

The markets, which were already anticipating harsh measures from RBI, on Tuesday closed down with the benchmark Sensex losing over 180 points to close at 14,106.58 after testing the crucial below 14k level for the first time since August last year.