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Sensex crashes 1,307 points after RBI’s rate hike surprise; Nifty settles at 16,678

Sensex crashes 1,307 points after RBI's rate hike surprise; Nifty settles at 16,678


NEW DELHI: An off-cycle hike in repo rate by the Reserve Bank of India (RBI) spooked equity indices on Wednesday, with the benchmark BSE sensex crashing over 1,300 points.
Both the indices fell over 2 per cent each after the RBI raised benchmark lending rate to 4.40 per cent to contain inflation.
The BSE index plunged 1,306 points or 2.29 per cent to close at 55,669. While, the broader NSE Nifty settled 392 points or 2.29 per cent lower at 16,678.
Bajaj Finance, Bajaj Finserv, Titan, IndusInd Bank, HDFC Bank and Maruti were the top losers in the sensex pack falling as much as 4.29 per cent. Twenty-seven out of 30 stocks finished in red.
Whereas, PowerGRid, NTPC and Kotak Bank were the only gainers.
On the NSE platform, all sub-indices finished in red with Nifty Media, Realty, Healthcare and Consumer Durables falling over 3 per cent each.

In a bid to contain inflation, the RBI increased the benchmark lending rate by 40 basis points to 4.40 per cent. Inflation has remained stubbornly above the target zone of 6 per cent for the last three months.
The decision follows an unscheduled meeting of the Monetary Policy Committee (MPC), with all six members unanimously voting for a rate hike while maintaining the accommodative stance.
“The MPC’s decision, in an unscheduled meeting, to raise the repo rate by 40 bps and CRR by 50 bps is a surprise since it came on the LIC IPO opening date. MPC’s proactive move is justified from the perspective of inflation management, but the timing leaves a lot to be desired.
“The above 1,000 point crash in sensex has soured the sentiments on the opening day of India’s largest IPO,” V K Vijayakumar, chief investment strategist at Geojit Financial Services told news agency PTI.
In terms of global markets too, shares were mostly lower on Wednesday as investors waited for a decision by the Federal Reserve on interest rates.
Central banks in many countries are raising rates as inflation squeezes businesses and consumers. To counter that, regulators are gradually increasing costs for borrowing that had dipped to record lows during the pandemic.
Watch Bloodbath in Dalal street: Sensex crashes 1,307 points after RBI hikes repo rate





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Government And RBI In Complete Harmony On Cryptocurrency, Other Issues: Finance Minister


Government and RBI on same page on various issues including cryptocurrency, the finance minister said

Finance minister Nirmala Sitharaman on Monday said that there was complete harmony between her department and the Reserve Bank of India (RBI) on all matters including cryptocurrencies. She added that there is respect towards each other’s domain and priorities keeping national interest in mind.

She was addressing media persons after RBI’s board meeting.

“Not just on crypto, but on every other thing as well. I think there’s complete harmony with which we’re working, respecting each other’s domain and also knowing what we’ve to do with each other’s priorities and in the interest of the nation. There’s no turfing here,” Ms Sitharaman was quoted as saying by agencies.

RBI governor Shaktikanta Das on his part said that the issue of cryptocurrency was under discussion internally between the central bank and the government.

“Whatever points we have, we have discussed with the government. Beyond that I think I will not like to further elaborate,” Mr Das said.

Ms Sitharaman, while presenting the budget on February 1, had said that a digital currency will be issued by the central bank in the next fiscal, which will use the blockchain technology. The budget also proposed to amend the RBI Act to introduce the proposed central bank digital currency (CBDC), which will function simultaneously with the traditional banknotes.

Last week Mr Das had said that private cryptocurrencies were a threat to macroeconomy and financial stability, and would undermine the central bank’s ability to deal with challenges on the two fronts. In a message for investors, he had said such assets have no underlying whatsoever, “not even a tulip”.

Meanwhile the finance minister reacting on LIC’s draft red herring prospectus, said that there was “positive buzz in the air” about it. 

She said that a big decision like this is never a “knee-jerk reaction. It is done with consciousness… And I can see after the announcement, the reception, there is a buzz in the air”.





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Shaktikanta Das continues to sound dovish, but hints at normalisation



The six-member monetary policy committee of the Reserve Bank of India (RBI) maintained a status quo on interest rates for the eighth consecutive meeting, which was along expected lines with Governor Shaktikanta Das batting for retaining the accommodative stance for as long as necessary to revive and sustain growth on a durable basis.


At the same time, the governor said that the liquidity surplus in the banking system has increased in September, with the potential liquidity overhang amounting to more than Rs 13 trillion.





As a result, the central bank has not announced any further bond buying under the Government Securities Acquisition Programme (G-SAP) – a programme that was announced in April. RBI purchased government bonds worth Rs 2.2 trillion under this scheme in the first half of the current financial year. The G-SAP progamme is the equivalent of the quantitative easing undertaken by the central banks of advanced economies.


“Given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation and the expected expansion of liquidity in the system as government spending increases in line with budget estimates, the need for undertaking further G-SAP operations at this juncture does not arise,” Das said, while assuring that the RBI stands ready to undertake G-SAP whenever necessary.


“While the tenor and quantum of VRRR have increased, RBI has moved a step ahead by reducing further active liquidity infusion by not announcing new GSAP calendar after sterilising earlier two instalments with a simultaneous sale of bonds,” said Madhavi Arora, lead economist, Emkay Global Financial Services.


The other instance which indicates that normalisation of the current ultra-loose monetary will happen sooner than later is the comment from the governor on liquidity absorption through 28-day Variable Rate Reverse Repo (VRRR).


“…the RBI may also consider complementing the 14-day VRRR auctions with 28-day VRRR auctions in a similar calibrated fashion,” Das said.


“The announcement of a complete tapering off of the RBI’s quantitative easing programme coupled with an expansion of the scope of the VRRR operations, is a clear sign that liquidity normalisation is now on the offing,” said Aurodeep Nandi, India economist & vice president at Nomura.


According to the central bank’s revised liquidity management framework, announced on February 6, 2020, VRRR of more than 14 days was meant for managing long term durable liquidity. So far, RBI has been conducting 14-day VRRR, which according to the liquidity management framework, was aimed at managing short-term, or transient liquidity.


RBI, however, reminded that the VRRR auctions are primarily a tool for rebalancing liquidity and should not be interpreted as a reversal of the accommodative policy stance.


“Focus was on liquidity management as the VRRR size for 14-day tenor has been increased in a calibrated manner. In a nutshell, dovish policy with focus on sustaining growth momentum amid increasing global uncertainties and supply chain-led high inflation,” said Anubhuti Sahay, head of economic research, South Asia, Standard Chartered Bank.


“Markets, however, might still view higher VRRR cut offs as a subtle way of normalisation in the money market,” she said.


The market clearly saw some indications of the liquidity normalisation process with the yields on the 10 year government bond advancing 3 bps after the measures were announced.


“While the RBI has refrained from committing any G-SAP amount to support bond yields, their emphasis on an “orderly evolution of yield curve” should provide comfort to bond markets. We expect 10-year Gsecs to trade in the 6.20-6.40 per cent range in the near term,” Churchil Bhatt, EVP Debt Investments, Kotak Mahindra Life Insurance Company Limited, said.


While there are subtle indications of normalisation, Das was clear that the central bank has no intention to rock the boat of gradual economic recovery that is underway.


“Our approach is gradualism…we don’t like surprises,” Das emphasised.


Market watchers are now looking at the next policy review meeting in December when the central bank would start increasing the reverse repo rate in order to align the short term rates with the repo rate – seen as a concrete step that the days of ultra-loose policies are over.





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