Banking, automobile, and housing sectors gained marginally on October 6 after the Reserve Bank of India (RBI) left the key repo rate unchanged at 6.5 percent, as was widely expected.
At 11 am, Nifty auto, Nifty bank, Nifty PSU bank and Nifty realty indices were trading up to 1 percent higher, against a 0.5 percent rise in the benchmark Nifty.
Among individual stocks, Maruti Suzuki, Tata Motors, and M&M led the automobile pack, rising 0.3-0.6 percent, while HDFC Bank, ICICI Bank, SBI gained up to 0.5 percent, and DLF, Godrej Properties, and Macrotech Developers surged up to 1 percent.
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The RBI has decided to discontinue the incremental cash reserve ratio (ICRR), which was brought in the August policy to withdraw surplus liquidity. Currently, the liquidity in the banking system is estimated to be in deficit of around Rs 34,061 crore.
In August, the central bank asked banks to maintain an ICRR of 10 percent on the increase in deposits between May 19 and July 28 following the withdrawal of Rs 2,000 currency note.
The Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates were left unchanged at 6.25 percent and 6.75 percent, respectively.
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Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers said that since RBI anticipates headline inflation even in FY25, the possibility of a rate cut in the next 12 months is highly unlikely.
“The strong possibility of the RBI remaining on hold for an extended period of time, as well as the continuance of liquidity tightening, is bad for interest-sensitive industries,” Hajra said.
The RBI expects inflation to average 5.4 percent in the current financial year, with Q2 at 6.4 percent, Q3 at 5.6 percent and Q4 at 5.2 percent.
In August, retail inflation for the year dropped 6.83 percent in August from a 15-month high of 7.44 percent in July.
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The MPC left the GDP growth forecast unchanged at at 6.5 percent.
“According to the RBI's inflation prediction for Q3FY24 and the rest of this fiscal year, the October policy outcome is not surprising. We expect the RBI to retain the status quo unless we see a durable drop in inflation and if steady economic activity continues,” Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors, said.
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