BSE Sensex, Indian rupee rally after Raghuram Rajan's RBI surprises by holding repo rate steady

Written by Reuters | Mumbai | Updated: Dec 18 2013, 19:26pm hrs
Sensex todayThe benchmark BSE Sensex index was up 1.1 percent, while the Nifty rose 1.2 percent. AP
BSE Sensex, bonds and the Indian rupee rallied on Wednesday after Governor Raghuram Rajan's RBI held interest rates steady despite the high retail and wholesale price inflation which had prompted investors to discount a quarter percentage point rate increase.

Markets Top Gainers, Markets Top Losers

The Reserve Bank of India unexpectedly kept the policy interest rate on hold on Wednesday, despite calling current inflation too high, citing the prospect of easing retail prices and its concerns about the weak domestic economy.

The benchmark 10-year bond yield fell as much as 15 basis points on the day to 8.76 percent after the policy review.

The partially convertible Indian rupee was trading at 61.81/82 per dollar versus its previous close of 62.01/02.

The benchmark BSE Sensex index was up 1.1 percent, while the NSE Nifty rose 1.2 percent.

Lakshmi Iyer, Chief Investment Officer ( Debt) & Head Products, Kotak Mutual Fund

RBI decision to maintain the policy status quo pleasantly surprised the market, which was expecting a 25 bps rate hike. The central banker may be attributing the recent resurgence in the WPI inflation to sharp spikes in vegetable prices. The RBI seems to be of the view that the lag effect of earlier rate hikes; and the onsetting kharif supply, may help temper down the inflation. Therefore this policy pause provides the central banker with the opportunity to calibrate its stance. This pause also provides the RBI with more headroom to take conducive measures, were the US Fed tapering effects to be adverse.