RBI’s ‘neutral’ stance on rate hike boosts stock indices
mumbai — The key indices of the Indian equity market made healthy gains on Wednesday as investors’ risk taking appetite was enhanced after the Reserve Bank of India maintained its “neutral” stance on future rate hike trajectory.
On Wednesday, RBI raised its key interest rate for the first time by 25 basis points to 6.25 per cent since January 2015.
Index-wise, the 30-scrip Sensitive Index (Sensex) provisionally closed higher by 275.67 points or 0.79 per cent. Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) also settled in the positive territory. It gained 91.50 points or 0.86 per cent to provisionally close at 10,684.65 points.
The Sensex of the BSE, which opened at 34,932.49 points, provisionally closed at 35,178.88 points, 275.67 points or 0.79 per cent higher from the previous day’s close at 34,903.21 points. The Sensex touched a high of 35,230.54 points and a low of 34,896.37 points during the intra-day trade.
“RBI maintaining its neutral stance has been taken as a positive by the investors. In addition, other announcements regarding the realty, bond market and banking sectors boosted sentiments,” said Deepak Jasani, head of Retail Research at HDFC Securities.
“The negative impact of the rate hike was also curbed as market participants had already factoredin the possibility of a rate hike.”
Meanwhile, Indian sovereign bonds slipped while the rupee climbed after the central bank raised its benchmark interest rate for the first time since 2014, but retained its neutral policy stance. Only 14 of 44 economists surveyed by Bloomberg News had predicted the Reserve Bank of India’s decision to increase the repurchase rate by 25 basis points to 6.25 per cent. Thirty expected no change. The central bank also said it will grant more entities the right to short-sell securities and allow more players to participate in the when-issued market, as part of measures to improve regulation and deepen financial markets. Both sovereign bonds and the rupee turned volatile after the rate decision as traders read the fine
The negative impact of the rate hike was also curbed as market participants had already factored-in the possibility of a rate hike
Deepak Jasani, Head of Retail Research, HDFC Securities
print of the central bank’s statement. The yield on the benchmark 10-year notes jumped to as high as 7.93 per cent, before paring its advance to 7.90 per cent, up seven basis points for the day. The rupee traded 0.3 per cent stronger at 66.96 per dollar, after swinging between gains and losses soon after the RBI’s announcement.
Wednesday’s move “should not impact bond yields much, as they already are at elevated levels, thanks to demand-supply issues and expectations for a tighter policy,” said Gopikrishnan MS, Mumbai-based head of FX, rates and credit trading for South Asia at Standard Chartered Plc.
—IANS, Bloomberg