Indian benchmark indices ended flat to marginally down on Wednesday, recouping the losses from post-RBI-policy shock. BSE Sensex ended down 0.16% at 28,289.92 points, while NSE Nifty ended flat at 8,769.05 points.
Earlier, the Sensex fell to the day’s low of 28,149.08 points and Nifty dropped to 8,715 points, immediately after the release of RBI’s bi-monthly monetary and credit policy review, where it kept the key rate unchanged at 6.25% against expectations, and toughened the policy stance to ‘neutral’ from ‘accommodative’.
The Reserve Bank of India’s Monetary Policy Committee today decided to keep the key policy rates unchanged, despite saying that it expects the consumer price inflation to remain below 5% in Jan-Mar, and continue to be muted in Apr-Jun on base effect and fall in demand.
The central bank opted to wait for more clarity on the trend of inflation and on the economic impact of demonetisation.
Bonds fell sharply, with the benchmark 10-year bond yield rising as much as 25 basis points. The 10-year bond yield was at 6.66% as of late afternoon, up from its 6.43% at Tuesday’s close. The rupee strengthened to 67.33 per dollar from its Tuesday’s close of 67.41.
Several analysts had expected the Reserve Bank of India to reduce key policy rates by 25 basis points to 6% in order to spur an economy recovering from the impact of demonetisation, as India’s falling inflation and a fiscally prudent budget had given it enough room to cut rates sooner to give a boost to the economy.
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Here’s what market experts expect from RBI’s Monetary Policy. pic.twitter.com/CTjHUvqyKt
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Bank index recovered from losses, with its constituents ending mixed. HDFC Bank and SBI gained about 0.5%, while ICICI Bank, Axis Bank and HDFC were down 05%-0.9% at Wednesday’s close.
Shares of automobile companies and consumer durable companies, which traded strong earlier in the day on the hopes of easing interest rates, ended in green. The S&P BSE Auto index ended up 0.68% at 22,230.98 points, while the S&P BSE Consumer Durable index ended up 2.83% 13,488.11 points.
Earlier yesterday, BofA-Merrill Lynch said in a research report that it expects RBI to cut policy rates by 50-75 basis points through September with help from a fiscally prudent budget, to offset the impact of demonetisation.