Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds

Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds
Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds
Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds
Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds

Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds

Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds

Rate-Sensitive Sectors Face Turbulence as RBI MPC Meeting Unfolds

Rate-sensitive sectors, including banking, automobile, and real estate, witnessed significant intraday losses on Wednesday, October 4th, defying expectations of the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) maintaining the status quo. The MPC’s three-day meeting, which commenced on Wednesday, is set to reveal its outcome on October 6th, prompting a cautious market sentiment.

Market Turbulence Amid RBI MPC Meeting Anticipation

On Wednesday, key indices such as Nifty Bank, Private Bank, PSU Bank, Auto, and Realty saw declines exceeding one percent during intraday trading, while the Nifty 50 equity benchmark dipped nearly one percent. This turbulence in the market can be attributed to apprehensions regarding the MPC’s forthcoming decisions and the impact of surging US Treasury yields and a strong dollar, which have weighed down market sentiment. Additionally, foreign capital outflows have further contributed to market uncertainty, with foreign institutional investors (FIIs) selling Indian equities worth ₹14,768 crore in September and ₹2,868 crore in October.

RBI Expected to Maintain Status Quo Despite Market Fluctuations

Experts anticipate that the RBI will maintain its current policy settings, with the MPC likely to keep the repo rate unchanged at 6.5 percent during the October 6th meeting. Key factors influencing this decision include diminishing core inflation, stable economic activity, and potential supply-related price shocks. Chief Economist at Bank of Baroda, Madan Sabnavis, also predicts a status quo as inflation remains elevated and liquidity remains tight. While the RBI aims to curb inflation, it also aims to support India’s economic growth.

Domestic inflation reached 7.4 percent in July but dropped to 6.8 percent in August, with expectations of reaching around 5.5 percent by December. Nevertheless, it remains above the 4 percent target and is expected to persist for several more quarters. The RBI’s focus on maintaining steady growth and managing external risks, such as inflation, is likely to result in the retention of the repo rate at 6.5 percent with a cautious stance.

Infomerics Ratings, a credit rating agency, predicts that the RBI will keep the Repo Rate unchanged for the fourth consecutive time due to persistent retail inflation and the US Federal Reserve’s hawkish stance. A complex global landscape marked by shifting trade dynamics, varying demand, commodity price fluctuations, pandemic recovery, and geopolitical tensions further underscores the need for RBI’s cautious approach to monetary policy.

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