RBI’s stance on interest rate and how stock market reacts to it

RBI’s stance on interest rates does not change. Amid the accommodative stance of the RBI, stock market overcomes uncertainty.

RBI’s stance on interest rate will remain accommodative.

On Thursday, Shaktikanta Das, the RBI governor, makes announcement as decided by Monetary Policy Committee (MPC) that the RBI will retain the current rates. The MPC comes to conclude this through a majority of 5 to 1. They plan to mitigate the effects of COVID-19 pandemic on economy by prioritising growth prospects.

Thus, RBI retains it growth projection at 9.2% while inflation remains at 5.3% for the current fiscal year.

The RBI governor says that high frequency indicators such as purchasing managers’ indices for manufacturing and services are showcasing a loss of momentum in economic activity. Especially, due to the fast spreading and virulent strain of COVID-19, Omicron.

Moreover, he adds that though inflation seems to be pushing above yet it is under anticipation. Though, the inflation in 2022 might peak in Q4. Further, he highlights that despite an increase in inflation, the demand remains mute. It is precisely due to contact-intensive services too. He even says that the surge in international crude oil price will need close surveillance.

Henceforth, the Marginal standing facility (MSF) rate and the Bank rate remains at 4.25% and the reverse repo rate remains at 3.35%.

Lastly, the quarter wise real GDP growth projected for the fiscal year 2022-23 is: 17.2% growth in Q1, 7% in Q2, 4.3% in Q3, and 4.5% in Q4. While, the real GDP growth projection for the 2022-23 stands at 7.8%.

On lending, RBI deputy governor says that the RBI will come up with guidelines for digital lending.

How does market reacts to RBI’s stance on interest rate?

Equity benchmarks Sensex and Nifty relax as uncertainty settles. BSE Sensex rallies up by 460.06 points to close at 58,926.03. While, Nifty goes up by 142.05 points to close at 17,605.85. Tata Steel, Infy, HDFC bank were the major gainers in the queue of those managed to land in green. On the other hand, Titan, Reliance, Ultracemco, NestleInd, Maruti were the major laggards.

 




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