Equity benchmarks the Sensex and the Nifty traded higher, inching closer to their all-time high levels after the Reserve Bank of India (RBI) maintained a status quo on policy rates and stance. While the Sensex hit the intraday high of 63,317.16, Nifty rose to the level of 18,775.60 in trade so far. The all-time highs of Sensex and Nifty are 63583.07 and 18,887.60, respectively.
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The Monetary Policy Committee (MPC) of the RBI decides to keep the repo rate unchanged at 6.5 per cent while the MPC also decided by a majority of five out of six members to remain focused on the ‘withdrawal of accommodation’ stance.
The repo rate remains unchanged at 6.5 per cent, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and bank rate are unchanged at 6.75 per cent.
Apart from this, RBI Governor Shaktikanta Das said CPI inflation (retail inflation) is still above the central bank’s target of 4 per cent and is expected to remain above it through 2023-24. Besides, the RBI expects real GDP growth for FY24 at 6.5 per cent.
Rate-sensitive sectors such as bank, auto and realty sectors traded mixed. The Nifty Bank index traded 0.30 per cent higher while the Realty and Auto indices were down 0.60 per cent and 0.13 per cent down around 10:30 am.
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Analysts believe the possibility of a cut in interest rates is now higher as economic growth is resilient and inflation is easing.
“It is a pause, and the possibility of the next move being a cut is far higher than that of a hike. Growth remains resilient and inflation while moderating now, could rise in the future as the labour market remains tight and the wage-inflation spiral remains a distinct danger,” said “Sandeep Bagla, CEO of Trust Mutual Funds.
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“Australia and Canada have raised rates after a pause. We are not out of the woods yet. Liquidity surplus will have to be reduced as ₹2000 notes seep into the banking system liquidity. It is quite possible that market yields rise by a few basis points as RBI waits for more economic cues amidst continued global contradictory cues on inflation and growth fronts,” said Bagla.
Suvodeep Rakshit, senior economist at Kotak Institutional Equities said RBI staying on a pause and maintaining its stance was in line with expectations.
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He underscored that the RBI remains cautious on the inflation trajectory especially as inflation will remain above the 4 per cent target for the foreseeable future. The RBI continues to estimate average inflation slightly above 5 per cent for FY24 and retained GDP growth at 6.5 per cent.
“We believe there are some downside risks to growth. We believe that rate cuts will be contingent on significant divergence in growth-inflation prospects. We maintain our call that the RBI will be on an extended pause,” said Rakshit.
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