The Reserve Bank of India?s (RBI) decision to hike the Cash Reserve Ratio (CRR) and repo rate by 25 basis points and 50 basis points respectively, impacted the BSE Bankex the most among all sectoral indices, after it registered a loss of 562.22 points or was down 8.31% to close the day at 6,199.60 points. The toll on the Bankex was much higher, as its three key constituents ICICI Bank, HDFC Bank, and State Bank of India (SBI), who together command more than 71% weightage in the index were the major losers.
Tushar Poddar, vice president, Asia Economic Research, Goldman Sachs said that the tightening of the monetary policy was more than expected. ?We think that a much higher interest rate will slow investment demand and growth, with the impact felt particularly in the financial year 2009-10?, he said. Navneet Munot, executive director, Morgan Stanley Mutual Fund said that RBI should continue to tread a cautious path, as the global situation remains fluid. He said, ?We maintain a bearish view on the bond market and expect yields to inch up further. We expect liquidity conditions to tighten significantly and the macroeconomic environment to deteriorate .?
Sudip Bandyopadhyay, CEO, Reliance Money said that inflation control remains the top priority for the apex bank. The CRR and repo rate hike seek to curb credit growth and correct the short-term debt yield curve.
A Balasubramaniam, CIO, Birla SunLife AMC said that the market needs to be cautious, as the environment could remain hawkish for both, the interest rate and credit. The 50 bps hike in repo rate and 25 basis points hike in CRR is clearly targeted towards slowing down the economy as well as keeping a check on the rising inflation, he said. Sameer Kulkarni, fund manager (Fixed Income), Fidelity Mutual Fund said, ?The RBI has made it clear that it seeks to ensure monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to growth.?