Sensex, Nifty recoup losses as RBI predictably keeps key policy rates unchanged

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Published: April 6, 2017 4:42:13 PM

Indian benchmark equity indices recovered early trading losses and ended flat to marginally down after the Reserve Bank of India kept the policy repo rate unchanged at 6.25% in its bi-monthly monetary policy review today, just as was expected.

Sensex ended down at 29,927 points, down 0.16% from the previous close, whereas Nifty squared losses to close at 9,262 points, down 0.03% from its previous close.

Indian benchmark equity indices recovered early trading losses and ended flat to marginally down after the Reserve Bank of India kept the policy repo rate unchanged at 6.25% in its bi-monthly monetary policy review today, just as was expected.

BSE Sensex and NSE Nifty, both of which were trading down since morning on concerns that the RBI will keep a tight monetary policy to keep inflation in check, rebounded immediately after the policy statement was released, breathing a sigh of relief as the central bank refrained from pulling any surprises to spook the markets.

Sensex ended down at 29,927 points, down 0.16% from the previous close, whereas Nifty squared losses to close at 9,262 points, down 0.03% from its previous close. Bank index, in particular, surged from its lows, following the RBI’s emphasis on tackling the problems of bad loans and stressed assets.

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RBI Governor Urjit Patel said that formation of new bad loans has come down on a relative basis. Further, the central bank is preparing to take next steps on banks’ stressed assets, and will issue a corrective steps framework by mid-April, he said. “RBI should create conditions for bank credit to revive,” Patel said.

Surplus liquidity in the system was one of the major factors that weighed in on the Monetary Policy Committee’s decision today. As the central bank, in an unusual move, raised the reverse repo rate by 25 basis points and cut the marginal standing facility rate, it also said it will use liquidity tools other than specified to manage the excess liquidity.

The Reserve Bank of India will manage and ease out liquidity through Market Stabilisation Scheme (MSS) and Open market Operation (OMO), it said, adding that the Open Market Operations sale would be carried out in a nimble manner so as to not disrupt markets. It added that it expects the quantum of durable surplus liquidity to come down in next few quarters.

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