India's Sensex Declines After RBI Holds Rates, Policy Stance

(Bloomberg) -- India stocks declined after the central bank maintained its hawkish stance on inflation while keeping the key policy rate unchanged.

The S&P BSE Sensex closed 0.7 percent lower at 35,884.41 in Mumbai. It fell as much as 1 percent after the decision. The NSE Nifty 50 Index slipped 0.8 percent. Markets across Asia tumbled following the biggest decline on Wall Street since mid-October.

After raising interest rates twice this year, the RBI kept its repurchase rate unchanged at 6.5 percent as predicted by economists surveyed by Bloomberg. Still, policy makers lowered the inflation forecast to a 2.7 percent to 3.2 percent range, citing slowing food price increases and a drop in oil prices, while retaining a stance of "calibrated tightening.”

Investors were expecting some steps by policy makers to boost liquidity after lenders were forced to raise rates, while anticipating a lower forecast for inflation amid a drop in the price of crude oil, India’s biggest import, before the outcome of state elections and a national poll next year.

The Numbers

  • All 19 sector sub-gauges compiled by BSE Ltd. slipped, led by the S&P BSE Metal Index’s 3.8 percent loss.
  • ITC Ltd. and ICICI Bank Ltd. were the biggest drags on the Sensex.
  • Tata Motors Ltd. was among worst performer on the main gauge, sliding as much as 4.1 percent. The automaker’s long-term rating was downgraded by S&P Global Ratings yesterday.

Strategic View

  • “The markets had already factored unchanged rates, but an unchanged hawkish stance may be a slight disappointment,” said Sushant Kumar, an equity fund manager at Raay Global Investments Pvt. in Mumbai.
  • “It’s a neutral policy as on the one hand there’s a door to boost liquidity due to SLR cuts and on the other the central bank maintained its hawkish stance. Inflation projection signals a dovish view, so the fear of hike in rates is out of the window for a while.”

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