RBI likely to hold rates as growth recovers

Cornelia Mascio
Dicembre 7, 2017

Five members of the monetary policy committee (MPC) voted to keep rates unchanged, with one voting for 0.25% cut in the repo rate, the cost at which the central bank lends overnight money to the banks. First, the moderation in core inflation (inflation excluding food and fuel) observed in Q1 2017-18 has reversed and there is a risk that this upward trajectory may continue in the near-term.

The RBI also contributed to the sell-off by selling 900 billion rupees ($13.95 billion) via open market operations since July to drain out excess cash accumulated after India's shock move to ban higher-value bills late a year ago as well as the central bank's foreign exchange market interventions.

He sees no policy move during next two quarters.

The Sensex, which had lost 100 points in early trade, continued its slide and fell 217.78 points, or 0.66 per cent, to 32,584.66. They expect the market to consolidate with a negative bias in near term, especially ahead of Federal Reserve Policy meeting next week and Gujarat State elections.

The equity markets which have been bearish since the last week, slipped further as Reserve Bank of India (RBI) made a decision to keep the repo rate unchanged at 6 per cent at the end of its two-day long policy review meet.

10-year benchmark G-sec was trading at around 7.08% before the policy announcement, post which it fell by 5 bps closing at 7.03%.

Bond markets had already factored in bottoming out of rate cycle given state of government fisc and rising oil prices. Third, RBI is concerned that the recent rise in worldwide crude oil prices may sustain, especially on account of the OPEC's decision to maintain production cuts through next year. Asian stocks declined across the board, with Japan's Nikkei and Hong Kong's Hang Seng falling 2 percent each. Punjab National Bank fell 2.5 percent, Axis Bank 0.7 percent, Bank of Baroda 2.2 percent, ICICI Bank 1.9 percent and HDFC Bank 1.3 percent.

The mid-cap index shed 0.89 percent and small-cap declined 0.66 percent.

In broader space, Canara Bank, UCO Bank, OBC, LIC Housing Finance, Voltas, JSW Energy, Jain Irrigation, NMDC, SAIL, MMTC, Manappuram Finance, Ajanta Pharma, Radico Khaitan and United Breweries down 1-5 percent while Dish TV, Bata, KPIT Technologies and PC Jeweller gained 1-5 percent.

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