1 hr ago
Indian Markets Pare Losses as RBI Raises Repo Rate
India's central bank raised the main interest rate by a small amount.
It did this as prices were rising and the rupee was weakening.
The bank also said it may raise rates again or wait, but a rate cut is not expected soon.
At first, India's main share-market measures fell sharply.
They later recovered much of that loss, helped by gains in several bank shares.
Even after the recovery, both measures were still below their previous close.
An economist said the rate increase was already expected by markets and does not necessarily mean more increases will follow.
The RBI raised its repo rate by 25 basis points to 5.50%, its first increase in nearly four years.
Sensex and Nifty recovered most of their early Wednesday losses, though both remained lower.
Bank stocks including Kotak Mahindra Bank, ICICI Bank, Axis Bank and State Bank of India gained.
The RBI's six-member Monetary Policy Committee unanimously voted for the increase and adopted a calibrated-tightening stance.
Foreign institutional investors sold equities worth Rs 2,961.30 crore on Tuesday, while Brent crude traded at USD 101.5 per barrel.
- Who
- The Reserve Bank of India and its six-member Monetary Policy Committee; Indian market participants.
- What
- The RBI raised its repo rate by 25 basis points to 5.50%, while the Sensex and Nifty pared most of their early losses.
- Where
- India's financial markets; the report is datelined Mumbai.
- When
- Wednesday, October 7; the article also reports trading figures from Tuesday.
- Why
- The RBI cited rising inflation and a weakening currency; rising food and crude prices and other pressures were also noted.
Reasons for tightening
Reasons for caution
Rate decision and outlook
Reasons for tightening
The RBI raised rates as inflation, food and crude prices, and rupee depreciation weighed in favour of tightening; it said further hikes could follow.
Reasons for caution
Anand Rathi economist Sujan Hajra described the increase as a close decision and said it did not necessarily signal a series of further hikes; the RBI could pause depending on conditions.
Market implications
Reasons for tightening
The RBI's move was presented as a commitment to price stability that could reassure markets.
Reasons for caution
The tighter policy stance rules out a near-term rate cut, while the benchmark indices remained below their previous close.
Key facts
- Repo rate after increase
- 5.50%
- Rate increase
- 25 basis points
- Sensex later level
- 72,929.75, down 154.23 points
- Nifty later level
- 22,687.35, down 87.40 points
- Sensex early low
- 72,520.73, down 547.08 points
- Nifty early low
- 22,578.25, down 197.85 points
- FII equity sales on Tuesday
- Rs 2,961.30 crore
- Brent crude
- USD 101.5 per barrel, up 0.98%
Quotes
Sanjay Malhotra
Reserve Bank of India Governor who announced the Monetary Policy Committee decisions.
“This does not necessarily herald a series of further hikes: even the calibrated tightening stance leaves room for a pause, depending on how inflation and external pressures evolve.”
theprint.in
“Rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.”
telegraphindia.com
theprint.in
Sources
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