RBI, Policy, The Central Bank is likely to maintain the status quo on key policy rates in its next bi-monthly economic policy, in view of inflationary concerns.
Rate sensitive stocks traded flat on February 10 in early deals ahead of the RBI monetary policy decision. The Central Bank is likely to maintain the status quo on key policy rates in its next bi-monthly economic policy, in view of inflationary concerns.
The MPC has held the key repo rate at record lows since May 2020 and reiterated time and again that it will remain supportive of growth and keep its stance accommodative until economic recovery is firmly entrenched.
However, market participants believe it is time for the RBI to shift focus back to controlling inflation and for it to at least change its stance to ‘neutral’ from ‘accommodative’ at the upcoming review.
Retail inflation accelerated to a five-month high of 5.59% in December from a year earlier, while wholesale price-based inflation, a proxy for producer prices, marginally eased to 13.56%, but remained in double-digits for nine straight months.
A change in stance to neutral would indicate that rates could move in any direction.
“It is an important statement and is bound to be announced now or in April,” said DK Joshi, chief economist at Crisil.
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Among the sectors, the auto index slipped into the red at 09:42 hours dragged by Maruti Suzuki, Hero MotoCorp, M&M and Ashok Leyland while Tata Motors, TVS Motor were trading in the green.
Nifty Bank also managed to stay in the green ahead of the interest rate decision led by gains from Axis Bank, HDFC Bank, State Bank of India, IDFC First Bank and RBL Bank while AU Small Finance Bank, Bandhan Bank and ICICI Bank was under pressure.
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Realty stocks were also in focus as the sector was looking for some rate cuts to boost demand. The index was trading flat but individual names edged higher with Lodha and Phoenix Mills adding over a percent each while Prestige Estates, Sunteck Realty and DLF were trading in the red.
“The RBI will likely view the budget in a positive light and as growth supportive, owing to increased public capex (quality of spending) and directional fiscal consolidation,” analysts at Nomura said in a note. Analysts at Nomura expect that the central bank could potentially go slow on its policy withdrawal due to the market borrowing’s size.
Also Read: Even before RBI hikes interest rates, it’s time investors exited long-duration funds
Madan Sabnavis, chief economist at Bank of Baroda said, “An increase in the reverse repo rate will mean this is the first step in signalling normalisation. We may expect more such hikes till the 25 bps corridor is reached.” “Markets will take it that rate hikes have started and yields may be expected to move up. This will be a precursor to the repo rate hikes to come,” he added.
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