Hike rates

Despite RBI’s decision to raise rates, Sensex rises

Notwithstanding the decision of the Reserve Bank of India (RBI) to increase the repo rate, the rate at which central bank banks, by 50 basis points or 0.5%, to 5.90%, Sensex has increased to end today’s session at 57,426.92 points from a gain of 1017 points. Nifty has earned 276 points and breaks the 17,000 point mark.

RBI’s decision was on the expected lines. This measure aims to contain inflation while protecting foreign exchange reserves.

RBI at its monetary policy committee meeting today also revised India’s growth projections to 7% from 7.2%. Although a downward revision, the 7% growth rate will make India one of the top five countries in economic expansion this year.

RBI Governor Shaktikanta Das pointed to growing geopolitical challenges that would be cause for concern, but added that India’s fundamentals remain strong, which is also boosting credit growth.

“The Reserve Bank of India’s 50 basis point repo rate hike was widely anticipated. The Governor has provided balanced guidance based on incoming data that clearly indicates the downside risks and possible upsides that remain on the horizon,” FICCI Chairman Sanjiv Mehta said in a statement.

“As the external sector headwinds continue unabated, we should be able to hold our own given our comfortable position on exchange rate and debt levels,” he said.

Anshuman Magazine, Chairman and CEO – CBRE (India, Southeast Asia, Middle East and Africa) said the quantum of increase is in line with expectations. “Given the global headwinds facing the economy, we believe the decision is a calibrated step towards balancing inflation and growth momentum,” he said.

The RBI has been raising key rates since May, when it unexpectedly held its first unscheduled meeting. The repo rate has risen a total of 190 basis points since May.

Also read: RBI raises interest rates to contain inflation