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Stock markets fall after RBI monetary policy decision, inflation concern looms large

Image Source : PTI/REPRESENTATIVE Stock Markets

Following the RBI monetary policy, Benchmark equity indices declined on Thursday dragged down by banking counters, after the unexpected announcement of reducing cash in the financial system. Investors also remained on the sidelines ahead of the US inflation data announcement.

The Reserve Bank of India (RBI) on Thursday left its key interest rates unchanged for a third straight meeting but signalled tighter policy if food prices drive inflation higher. The monetary policy committee, which has three members from the central bank and a similar number of external members, held the benchmark repurchase rate (repo) at 6.

50 per cent in a unanimous decision.

It retained the stance on “withdrawal of accommodation” but Governor Shaktikanta Das sounded hawkish when he highlighted that headline inflation needs to subside sustainably below 4 per cent and any surge in the inflation print, if continued for a longer period, may necessitate fresh action.

Sensex, Nifty decline

The 30-share BSE Sensex fell 307.63 points or 0.47 per cent to settle at 65,688.18. During the day, it tanked 486.67 points or 0.73 per cent to 65,509.14. The NSE Nifty declined 89.45 points or 0.46 per cent to end at 19,543.10.

“RBI kept the policy rate unchanged at 6.5 per cent with a stance of ‘withdrawal of accommodation’ while supporting growth. The market participants would have ideally wanted a less hawkish undertone but the governor sounded cautious in his address,” said Srikanth Subramanian, CEO, Kotak Cherry.

From the Sensex pack, Asian Paints, Kotak Mahindra Bank, ITC, Bharti Airtel, Axis Bank, ICICI Bank, Nestle, Tata Motors, HDFC Bank, HCL Technologies, Maruti and Hindustan Unilever were the major laggards. IndusInd Bank, JSW Steel, Titan, Bajaj Finance, Tech Mahindra and Power Grid were among the gainers. 

Inflation concern looms large

“Inflation concerns have resurfaced in the domestic market after the RBI elevated their CPI forecast by 30 basis points to 5.4 per cent, thereby increasing the chances of a protracted rate cut trajectory. Furthermore, the RBI’s move to control liquidity through incremental CRR dented the sentiments of the banking sector, although the impact is projected to be limited,” Vinod Nair, Head of Research at Geojit Financial Services.

In the broader market, the BSE smallcap gauge declined 0.15 per cent and the midcap index fell 0.09 per cent. In Asian markets, Tokyo, Shanghai and Hong Kong settled in the green, while Seoul ended lower. European markets were trading in the green. The US markets ended in negative territory on Wednesday.

(With inputs from PTI) 

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