RBI doesn't want to wait and watch but act quickly before inflation derails growth recovery: Deloitte India's Rumki Majumdar
Rumki Majumdar, Economist at Deloitte India, is of the view the RBI's policy action shows the central bank's intent to act swiftly before inflation derails the growth recovery. "As the economy normalises, there is a rising concern about demand growing at a pace faster than supply, thereby leading to demand-pull inflation. Besides, global inflation is also a concern. High commodity, edible oil, metal and fertiliser prices due to the Russia-Ukraine crisis are adding to production costs. Both cost-push and demand-pull inflation drivers have been indicating that the RBI will have to act on price pressure worries," she says.
"Making it costlier to borrow will affect consumers and businesses, especially MSMEs, and impact credit growth, which has been low since 2019. Economic activity will also likely see some restrain... With the Fed expected to raise policy rates aggressively and correct its balance sheet, the RBI does not have much of a room to maneuver but to raise policy rates from a decadal-low level, where it has stayed for over two years," she adds.
Gash is always deeper when something unexpected happens: Prakash Diwan
"While we are bracing for the US markets to kind of give us some sort of an indication of inflation being persistent and rate hikes to be continuous, this (RBI policy action) is definitely something that has come as a surprise. But it's not something bad for the system. We all anticipated that this was bound to happen. It's just the timing or the nature of the quantum that probably wasn't very accurately judged... Going ahead, the market will take cues from the way we've already seen FIIss very clearly demonstrate the behaviour and exit from the market. Domestically, the more important thing will be the support the LIC IPO gets in spite of all these tailwinds that we've now seen being created," says market expert Prakash Diwan.
"If that were to go through, because that will absorb a lot of liquidity out of the market, there is some time before the market restores its strength... We will need a lot of liquidity to pour into the market and that's not coming very easily with these two events around the corner. I would place for a little bit of a tough week going ahead," he adds.
Market At Close | Sensex down 1,307 pts, Nifty gives up 16,700
Here are some highlights:
--RBI’s out-of-turn rate hike drags market
--CRR hike along with repo rate hike puts pressure on market
--Financial stocks see sharp fall following 40 bps rate hike announcement
--Barring Kotak Mahindra Bank, Federal Bank, all Nifty Bank constituents in the red
--HDFC Bank, ICICI Bank, Axis Bank, SBI, IndusInd top banking losers
--Britannia up three percent but off day’s high on better-than-expected financial results
--ONGC top Nifty gainer as crude oil rate rises over three percent
--Commodity stocks remain weak on falling global prices, Hindalco down five percent
--Most midcap stocks down; Alembic, Voltas, Shriram Transport Finance top losers
--Market breadth favours bears, advance-decline ratio at 1:5
Timing of rate hike clearly a surprise: Kotak Mahindra Bank's Upasna Bhardwaj
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, is of the view that the timing of the RBI's move to hike the rate is clearly surprising. "No one probably in the market was really expecting an off-cycle announcement. We were looking at 25 basis points (bps) in June, so clearly the quantum is also much higher, along with that there is a CRR hike. All of that taken together is a complete surprise in terms of timing and the quantum," she says.
"Having said that, I would agree that the credibility of central bank has been fairly restored. It is absolutely well-timed and now the forward guidance is quite clear... By the time we end the year, I do expect that we would be back to the pre-pandemic levels, which is 5.15 percent. Earlier, we were closer to five percent, so clearly this is slightly higher than what we thought earlier,” she adds.
RBI's CRR move to withdraw liquidity worth over Rs 83,000 crore
CRR is the share of total deposit a lender needs to keep with the central bank as reserves in the form of liquid cash. The RBI increases the CRR to control the excess flow of money in the economy as the amount available with lenders to sanction loans comes down. (Read more)
A majority of rate-sensitive stocks in the red after RBI's out-of-cycle announcements
Most of the rate-sensitive stocks -- or stocks from spaces sensitive to changes in interest rates -- are in the red as the Reserve Bank of India's 40-bps hike in the repo rate shocks the Street.
Repo rate is the key rate at which it lends short-term funds to commercial banks.
The MPC also decided to hike the cash reserve ratio (CRR) -- or a proportion of total deposits that commercial banks need to keep partked with the RBI -- by 50 basis points to 4.5 percent. (Read more)
Most rate-sensitive stocks in the red after RBI's out-of-cycle announcements
Most of the rate-sensitive stocks -- or stocks from spaces sensitive to changes in interest rates -- were in the red on Wednesday, after the Reserve Bank of India (RBI) in a surprise move announced a 40 basis-point hike in the repo rate. Repo rate is the key rate at which it lends short-term funds to commercial banks. (Read more)
All sectors in the red as RBI hikes repo rate by 40 bps
|NIFTY CONSUMER DURABLES||-2.8|
|NIFTY HEALTHCARE INDEX||-2.5|
|NIFTY FINANCIAL SERVICES 25/50||-1.9|
|NIFTY FINANCIAL SERVICES||-1.7|
|NIFTY PRIVATE BANK||-1.3|
|NIFTY PSU BANK||-1.0|
|NIFTY OIL & GAS||-0.8|
Kotak Mahindra Bank shares buck the trend in the entire BFSI basket
|Stock||Change (%)||Price (in rupees)|