Benchmark indices ended lower on Wednesday after the Reserve Bank of India (RBI) raised its repo rate by 25 bps to 6.5%. The policy comes amid rising inflation and a falling rupee. The widening current account deficit in an election year is also a key monitorable for the policymakers.
The S&P BSE Sensex ended at 37,522, down 85 points while the broader Nifty50 index settled at 11,346, down 10 points. In intra-day deals, the S&P BSE Sensex hit a fresh all-time high of 37,711.87 while the Nifty50 index touched its record high level of 11,390.55.
Among sectoral indices, the Nifty PSU Bank index ended 0.52% higher led by IDBI Bank and Punjab National Bank, while Nifty Auto index settled 0.76% lower due to fall in Exide and Motherson Sumi.
MONETARY POLICY REVIEW The central bank's Monetary Policy Committee also increased the reverse repo rate by 25 bps to 6.25%, while keeping a neutral stance on policy. It pegged retail inflation at 4.8 per cent for the second half of the current fiscal. It also kept the GDP forecast for the current fiscal unchanged at 7.4 per cent and saw it at 7.5-7.6 per cent in the second half of the current fiscal.
This was the first time since October 2013 that the central bank hiked repo rate --- the rate at which the RBI lends to commercial banks --- at two consecutive policy meetings.
POLICY REACTION The RBI policy decision does come as a surprise given that the overall inflation projections have not really changed significantly for the year being put at 4.6% in Q2 and 4.8% in H2, writes Madan Sabnavis, Chief Economist, CARE Ratings. The risks pointed out by the RBI still remains the same with the MSP, oil price, demand, HRA factors driving the decision to hike rates, he says.
READ MORE HERE Asian shares gave up ground on Wednesday, with weak data in the region and fears of an imminent escalation in the tariff war between the United States and China pulling markets lower even as strong earnings out of the US provided some support.