RBI August MPC Meet: Market Reaction on hawkish tone in Monetary Policy
The Reserve Bank of India's (RBI) latest monetary policy committee (MPC) decision has caused the Sensex index to go down as investors react to the unexpectedly hawkish tone.
V.K. Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, says that the MPC's decisions about rates, stance, and general mood have been in line with what the market expected. Even though the interest rates and stance haven't changed, the stance has become more careful, which could mean that rates will go up in the future.
The expected inflation rate based on the Consumer Price Index (CPI) for the fiscal year 2024 has been increased to 5.4% from the previous estimate of 5.1%. This change might put off any rate cuts until the first quarter of the next fiscal year, which would be 2025. According to Vijayakumar, the policy statement is unlikely to contain any major surprises for the market.
Ajit Kabi, a banking analyst at LKP Securities, recently reported that the RBI decided to keep the policy rate at 6.5% after a meeting of the Monetary Policy Committee. Except for the CPI, Kabi does not think inflation is anything to worry about.
Kabi also noted that the CPI projection for FY24 had been increased from 5.1% to 5.4%. Real GDP growth was also predicted to be 6.6%. He stressed that the MPC at the RBI is still dedicated to bringing inflation in line with the 4% target and stabilising inflation expectations more generally.
A drop of 326 points brought the BSE Sensex down to 65,669 points after the RBI policy announcement. Some equities have been hit worse than others; for example, Asian Paints is down more than 2%, while Tata Motors and Nestle are down more than 1%.
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