Indian stock markets opened higher on Wednesday, with gains led by the information technology and pharmaceutical sectors as investors anticipated the Reserve Bank of India’s (RBI) monetary policy decision, expecting the central bank to hold interest rates steady.
As of 9:44 a.m. IST, the Nifty 50 index rose by 0.25% to 25,073 points, while the S&P BSE Sensex climbed 0.18% to 81,778.84. The RBI is expected to maintain key policy rates unchanged for the tenth consecutive meeting, as it continues its effort to keep inflation in check.
When the policy announcement was announced at 10:00 a.m. IST stating that the RBI’s MPC panel voted in favour of keeping the repo rate unchanged at 6.5%, the market sentiment slightly reversed but is expected to improve once the RBI Governor Shaktikanta das gives his press briefing at 12 p.m. on Wednesday.
Eleven of the 13 major sectors posted gains, with small- and mid-cap stocks climbing roughly 1%. The IT sector rose 0.7%, marking its fourth consecutive day of gains, as U.S. labor market data eased fears of a recession in India’s key export market. The pharma sector also jumped 1.3%, led by Divi’s Laboratories, which surged 5% following a “buy” rating from Citi.
Torrent Power saw a notable 8% jump after securing two significant orders from the Maharashtra State Electricity Distribution Company to build 2000 MW of energy storage capacity.
In a pivotal move, the Reserve Bank of India (RBI) has kept its benchmark interest rates unchanged at 6.5%, but shifted its policy stance to neutral, signaling a potential rate cut in December. The announcement came after a three-day monetary policy committee (MPC) meeting that concluded today.
Five out of the six members of the MPC voted to maintain the current repo rate, while all six unanimously agreed to adopt a neutral stance—marking the first such shift in two years, according to RBI Governor Shaktikanta Das. The neutral stance indicates the central bank is now equally poised to either raise or lower rates, depending on future economic conditions, with a focus on balancing inflation and growth.
This decision aligns with a Mint survey, where 9 out of 10 economists predicted no change in rates this time.
Governor Das will address the media at noon today to provide further details.
This is the first MPC meeting after three new members—Bhattacharya, Kumar, and Singh—were appointed by the government, replacing outgoing members Shashanka Bhide, Ashima Goyal, and Jayanth R. Varma.
Internet banking facility to be started for Regional Rural Banks’ customers.
Regulation of offline payment aggregators proposed.
Repo Rate hiked to 5.90%
The repo rate, the rate at which RBI lends money to commercial banks, has been hiked by 50 basis points again. Considering the prevailing adverse global environment, resilience in domestic economic activity, uncomfortably high inflation level, the RBI has hiked the policy repo rate by 50 basis points, to 5.40%.
Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.65% and the marginal standing facility (MSF) rate and the Bank Rate to 6.15%. The Monetary Policy Committee has decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth, stated RBI Governor Shaktikanta Das.
The Governor announced a series of four additional measures, as given below.
1. Discussion paper on Expected Loss-Based Approach to be released for loan-loss provisioning by banks
Banks currently follow incurred-loss approach, where provisions are made after stress has actually materialized, this is to be replaced by a more prudent approach which requires banks to make provisions based on assessment of probable losses.
2. Discussion paper on securitization of Stressed Assets Framework (SSAF) to be released.
Revised framework for securitization of stressed assets was issued in Sep 2021, it has now been decided to introduce a framework for securitization of stressed assets, this will provide alternate mechanism for securitization of NPAs in addition to existing ARC route.
3. Internet banking facility for customers of Regional Rural Banks.
RRBs are currently allowed to provide internet banking facility to customers subject to fulfillment of certain criteria, to spread digital banking in rural areas, these criteria are being rationalized, revised guidelines to be issued separately.
4. Regulation of offline payment aggregators.
Online Payment Aggregators (PAs) have been brought under the purview of RBI regulations since March 2020. It is now proposed to extend these regulations to offline PAs, who handle proximity/ face-to-face transactions. This measure is expected to bring in regulatory synergy and convergence on data standards.
Growth Projection – 7.0% for 2022-23
The Governor informed that the central bank’s growth projection for the Indian economy for 2022-23 is projected at 7.0 per cent with Q2 at 6.3 per cent; Q3 at 4.6 per cent; and Q4:2022-23 at 4.6 per cent, with risks broadly balanced.
The growth for Q1 of 2023-24 is projected at 7.2 per cent.
Against the current challenging global environment, economic activity in India remains stable, stated the RBI Governor. “While real GDP in first quarter of this year turned out to be lower than expectations, it is perhaps the highest among major global economies”, he added.
Inflation
Inflation inched up to 7.0 per cent in August from 6.7 per cent in July, stated the RBI Governor. Global geopolitical developments are weighing heavily on the domestic inflation trajectory, he said.
The RBI Governor stated that monetary policy has to carry forward its calibrated action on policy rates and liquidity conditions consistent with the evolving inflation growth dynamics. It must remain alert and nimble, he stated.
