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RBI repo rate hike: Share market stable, rupee and bond surge

NEW DELHI: Despite the RBI’s repo rate hike by 50 bps, which was on the higher side of the expectations, India’s equity market remained stable and managed to close in green on Friday. The bond market, on the other hand, witnessed a sharp surge while the Indian National Rupee (INR) strengthened against the US Dollar.

Amidst a continuing tug of war between bulls and bears, benchmark BSE Sensex closed 89.13 points higher at 58387.93, while the NSE Nifty shut shop 15.50 points higher at 17397.50.

According to most experts, the market had already factored in a rate hike of 35-50 bps. If the RBI Governor had taken a very hawkish stance, to say a hike of 60-75 bps, to bring down inflation below the 6%-mark, the share market would have reacted differently.

Sujan Hajra – Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers, said that their assessment suggests that the market is currently factoring in the peak repo rate at 6% in this cycle and the medium-term inflation in the range of 5 to 5.2%.

“We have a similar view on the rate front but we feel that the softening of inflation in the early part of the next financial year can be substantially more than what is being currently factored in. The measures are neutral for debt and equity markets but positive for rupee,” added Hajra.

The rupee appreciated by 17 paise to close at 79.23 (provisional) against the US dollar on Friday. At the interbank foreign exchange market, the domestic currency opened at 79.15 per dollar. It traded in a range of 78.94 to 79.29 during the session.

Soumya Kanti Ghosh, group chief economic adviser at SBI, said that the 50 bps hike is an indication that RBI is more concerned about rupee and external situation by using interest rate as a defence to protect the domestic currency. He added that even though the RBI has front loaded the rate hikes, it remains to be seen how it influences the trajectory of the rupee over the medium-term.

India’s 10-year treasury yield had its highest single-session rise in three months as it rose to 7.303% post the policy announcement against the previous day’s level of 7.157%. Other bonds have witnessed a surge.

Amidst a continuing tug of war between bulls and bears, benchmark BSE Sensex closed 89.13 points higher at 58387.93, while the NSE Nifty shut shop 15.50 points higher at 17397.50. According to most experts, the market had already factored in a rate hike of 35-50 bps.