A 50 bps rate hike may seem hawkish, but it was required to control inflation, South Indian Bank MD & CEO Murali Ramakrishnan said
The central bank has raised the repo rate by 50 basis points, but offered little information on how it might act in the coming months.
Earlier, Das had said that due to the steps undertaken by central bank, surplus liquidity in the banking system has come down from Rs 6.7 lakh crore in April-May to Rs 3.8 lakh crore in June-July.
Bank stocks have already been rallying for a couple of months thanks to improved financial performance and recovery in economic activities.
Typically, when interest rates goes up, banks tend to extend loan tenure and not EMI first, pushing up the interest outgo for home loan borrowers significantly over long tenures of 15-30 years
With the latest rate hike, the monetary policy committee has taken the rates to pre-pandemic levels, something RBI Governor Shaktikanta Das had hinted at a while ago.
Sensex and Nifty maintain morning gains. Sensex was up 0.36 percent at 58,508 while Nifty was up 0.34 percent at 17,440.
At close, the home currency ended at 79.02 a dollar -- a level last seen on July 4, up 0.23 percent from its Friday's close of 79.25.
The monetary policy committee, which begins its meeting bi-monthly review meeting on August 3, faces multiple headwinds but its biggest enemy is inflation
Markets are forward looking -- in all the previous rate hiking cycles, the maximum rise in yields had happened until the first rate hike
This year, the Indian currency has already declined 5% due to continuous dollar outflows from local markets. Foreign investors have sold equities worth around $27.22 billion, so far, this year
Even as the RBI has cumulatively increased repo rate by 90 bps in a little over a month and with expectation of further rate hikes, credit demand is expected to remain buoyant, bankers say.
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The RBI continues to soft-pedal interest rates and keep liquidity in surplus. The policy of gradual withdrawal may last many MPC meetings
Increase in the e-mandate limit will help users leverage benefits available under the framework to a greater extent and enhance customer convenience.
The MPC has moved to the path of policy tightening as inflation begins to pinch on the ground. But clearly, it acted too late and has limited tools now.
Ten-year bond yields fell 7 basis points to 7.451 percent from its previous close of 7.518 percent, while shorter four-year bond yields dropped 12 basis points, three-year bond yields lost 9 bps and two-year yields erased over 14 basis points
"The only thing to watch is oil prices, which are not showing signs of coming down. If it spikes again to say $150 levels, then there is a real risk as inflation will haunt us and there will be issues on the external account as well."
The measures sparked rally in shares of DLF, Macrotech Developers, Oberoi Realty, Sobha, Brigade Enterprises, and Godrej Properties
RBI governor mentioned that these new measures will ensure better credit flow to the housing sector.
The pace at which Indian equities have fallen has not been as fast as the Asian markets when measured in the local currency.
RBI Monetary Policy Meet: A rate hike is given this time, only the quantum of increase needs to be seen. But what will be the impact on markets, how much can banks pass on?
Other factors hammering stocks include continued selling by foreign institutional investors, inflation and downgrades
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In spite of the likelihood of a series of rate hikes, policy may yet remain broadly supportive for growth as real policy rates may remain negative, with average CPI inflation exceeding the nominal Repo rate over the year