The Reserve Bank of India’s (RBI) surprise move to keep repo rates unchanged at 6.50% in its April policy meeting was cheered by the domestic stock markets which had begun Thursday’s session on a cautious note.
Sensex shot up over 200 points after opening with over a 100-point deficit and was trading at 59,898. Meanwhile, the broader Nifty50 edged 0.29% higher to 17,607 around 12 pm. Rate-sensitive stocks from the banking & financials, realty and auto sectors rallied after the announcement.
The market was hoping for a final 25 bps interest rate hike before the central bank pushed the pause button. The Governor, however, clarified that the pause was only applicable to the April policy.
Uday Kotak, Chief Executive Officer of Kotak Mahindra Bank
“Monetary policy: Focus on Financial Stability. Rate pause without change in stance. Global banking fragility on every Central Bank’s mind in this viral digital world. While Indian financial system is in good shape, let’s “be not slack and be diligent,” Kotak tweeted.
Nilesh Shah, MD at Kotak Mahindra AMC
The RBI’s pause is like Sachin’s stroke on a tricky pitch but with eyes set in and having the luxury of hitting the ball wherever he wanted. The RBI had the option of a rate hike or a pause. The pause was not entirely unexpected.
We believe this is a big positive for the market, where the governor has shown unprecedented flexibility and is willing to act according to the situation rather than be rigid and simply data-driven. This essentially is a sign that RBI is willing to adopt a balanced approach between growth & inflation, and is not purely data-driven or single-minded in their approach. We believe this is a fairly positive move for the equity markets.
This is in line with our expectations and possibly a best-case scenario. The RBI has remained prudent as it evaluates the comprehensive effect of rate hikes that we saw over the last year. Despite the pause, food inflation is of grave concern to the RBI and they are willing to lean over backwards to slow down inflation and get it back to the tolerance band.
The banking sector will witness some short-term relief rallies as the global banking crisis fears wane. Now on a macro level, we could see FPI’s unwinding short-sell position over the coming months. Subsequently, we should also start seeing FPI money flowing back to Indian markets as the US fed rates peak and rate cuts get priced into the markets.
Adhil Shetty, CEO, Bankbazaar.com
Stock markets might see short-term appreciation on the back of this announcement. The long term remains to be seen but the outlook gets optimistic. Long-term debts will appreciate, and bond fund NAVs should rise in the short term. As far as FDs are concerned, you must lock into higher rates since we don’t know if things will get any better in terms of interest rates.
Anil Rego, Founder and Fund Manager, Right Horizons PMS
The markets were pricing in for a last rate hike during the year however to its surprise an unchanged stance might have a positive effect. A change in stance to dovish going forward by RBI will lead to rally in the banking segment while a prolonged hawkish stance will impact deposit rates and lead to narrowing NIMs, more so for PSBs.