 "RBI rate hike spooks market; banking stocks plunge")
Benchmark shares indices erased early gains and edged lower after the RBI surprised the street by hiking the repo rate by 25 bps to 8% in its third quarter monetary policy review today.
Rate sensitive shares pared early gains and slipped into negative terrain after the Reserve Bank of India at its third quarter monetary policy review surprised the street by hiking the repo rate by 25bps to 8%. The central bank kept the cash reserve ratio unchanged at 4%.
Market experts expected the central bank to maintain status quo on key policy rates.
The Bank Nifty which was trading marginally higher in early trades pared gains and was down 90 points to 10,451. Bank shares were down on worries over slowdown in credit growth amid high interest rates and possibility of pressure on net interest margins going forward.
ICICI Bank, HDFC Bank and Axis Bank were down 1% each.
Consequently, the reverse repo rate under the Liquidity Adjustment Facility (LAF) stands adjusted at 7%, and the marginal standing facility (MSF) rate and the bank rate at 9%.
The Cash Reserve Ratio (CRR) was kept unchanged at 4% of Net Demand and Time Liabilities (NDTL).
A month after touching a record high, CPI inflation came down to a three-month low of 9.87% in December compared with 11.16% a month ago. While the Wholesale Price Index (WPI) inflation was at five-month low in December at 6.16% compared with 7.52% the previous month.
The yield on the 10-year benchmark government bond shot to 8.80% compared with previous close of 8.77%. Just before the policy announcement it was trading at 8.71%.
By 11:03, the Sensex dipped by 87 points at 20,621 mark and the Nifty slipped by 28 points at 6,108 levels.Rate sensitive shares pared early gains and slipped into negative terrain after the Reserve Bank of India at its third quarter monetary policy review surprised the street by hiking the repo rate by 25bps to 8%. The central bank kept the cash reserve ratio unchanged at 4%.
Market experts expected the central bank to maintain status quo on key policy rates.
The Bank Nifty which was trading marginally higher in early trades pared gains and was down 90 points to 10,451. Bank shares were down on worries over slowdown in credit growth amid high interest rates and possibility of pressure on net interest margins going forward.
ICICI Bank, HDFC Bank and Axis Bank were down 1% each.