Bank stocks in action after RBI hikes repo rate by 25 bps

The Reserve Bank of India (RBI) raised the key policy repo rate by 25 basis points and said it remained focused on the withdrawal of accomodation.

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (8 February 2023) decided to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.50% with immediate effect.

Consequently, the standing deposit facility (SDF) rate stands adjusted to 6.25% and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.

The MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

The outlook for inflation is mixed. inflation is projected at 6.5% in 2022-23, with Q4 at 5.7%. On the assumption of a normal monsoon, CPI inflation is projected at 5.3% for 2023-24, with Q1 at 5%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%, and risks evenly balanced.

Real GDP growth for 2023-24 is projected at 6.4% with Q1 at 7.8%, Q2 at 6.2%, Q3 at 6% and Q4 at 5.8%, and risks broadly balanced.

"The global economic outlook does not look as grim now as it did a few months ago. Growth prospects in major economies have improved, while inflation is on a descent, though it still remains well above the target in major economies," RBI Governor Shaktikanta Das said in his statement.

"Inflation is expected to average 5.6% in Q4:2023-24," he added.

The next meeting of the MPC is scheduled during 3rd, 5th and 6th April 2023.

Following the rate-hike announcement, the Nifty Bank index was down 0.06% to 41,465.45 while the benchmark Nifty 50 index was up 0.53% to 17,816.30.

Bandhan Bank (up 0.89%), SBI (up 0.44%) and PNB (up 0.39%) were top Nifty Bank gainers.

Among losers, Axis Bank fell 0.43%, while Bank of Baroda and IDFC First Bank we down 0.42% each.

In the bond market, the yield on India's 10-year benchmark federal paper rose to 7.34% compared with 7.31% at close in the previous trading session.

In the foreign exchange market, the rupee edged lower against the dollar. The partially convertible rupee was hovering at 82.7125, compared with its close of 82.70 during the previous trading session.

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