E-Paper
Hike in inflation target leaves markets cold
MUMBAI: The 0.25% repo rate cut by the Reserve Bank of India on Tuesday failed to cheer the markets as there were no clear indications on rate cuts in the future.
MUMBAI: The 0.25% repo rate cut by the Reserve Bank of India on Tuesday failed to cheer the markets as there were no clear indications on rate cuts in the future.
The RBI also revised its inflation target for March 2017 and March 2018 from 5% and 4% to 5.3% and 4.5% respectively. The uptick in inflation expectations was due to the incorporation of the seventh pay commission recommendations on house rent allowances (HRA).
“While the RBI did cut interest rate, the commentary along with it signals that the room for further rate cuts may be fairly limited. That has injected a sense of caution among market participants,” said Ajay Bodke, CEO and chief portfolio manager at Prabhudas Lilladher.
The Bombay Stock Exchange’s Sensex closed up 91 points or 0.3% at 28,334.55. It had hit a high of 28,404.70 earlier in the session. The wider NSE Nifty50 rose 31 points or 0.4% to end at 8,769.15.
Economists, analysts and bankers were expecting a status quo on Tuesday with a majority saying that the central bank would reduce rates by 50 basis points in December.
“It was an expected move and I would have been surprised if the RBI had not cut. All factors needed were there, be it falling inflation, low current account deficit and adequate forex reserves. Globally interest rates are in negative territory and if our rates are not reduced, India will lose its competitiveness,” said Seshagiri Rao, group CFO, JSW Group.
Realty stocks gained on hopes that RBI moves to cut repo rate would bring home loan rates down and thus drive demand. BSE’s Realty index rose about 1%.
“More than the quantum of the rate cut, it sends a very positive signal. We can very clearly see that in the growth-inflation trade-off, the RBI is favourably inclined towards promoting growth in the economy,” said Chandrajit Banerjee, director general, CII.
Banking stocks traded mixed, with State Bank of India closing up 1.6% and ICICI Bank rising 0.8%. However, Axis Bank was down 0.8%.
“These steps will give a strong impetus to both consumption and investment led growth for the country. The strong focus by the government on supply side measures, which have resulted in containing inflation, has provided room to RBI to support growth through this rate cut,” said Chanda Kochhar, MD and CEO, ICICI Bank.
Investors will also have an eye on the corporate earnings for the quarter ended September, where there aren’t expected to any positive surprises, said Bodke of Prabhudas Lilladher.
