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Dalal Street takes RBI rate hike in its stride

All eyes on RBI as threats of US debt default rise

Notwithstanding the Reserve Bank of India’s (RBI) decision to increase the repo rate—the rate at which banks from the central bank—by 50 basis points or 0.5 per cent—to 5.90 per cent, Sensex moved up ending today’s session at 57,426.92 points a gain of 1017 points. Nifty was up 276 points and crosses the 17,000 points mark.

RBI’s decision was on expected lines. The move is aimed at containing inflation while protecting foreign exchange reserves.

RBI in its monetary policy committee meeting today has also revised India’s growth projections to 7 per cent from 7.2 per cent. Though, it is a downward revision, growth rate at 7 per cent will make India among the top five countries with economic expansion this year.

RBI Governor Shaktikanta Das outlined the rising geopolitical challenges which would be a cause for concern but added that India’s fundamentals remained strong which is also pushing credit growth.

“The 50-bps point hike in the repo rate by the Reserve Bank of India was widely anticipated. The Governor has delivered a balanced guidance based on the incoming data clearly indicating the downside risks and the possible upsides that remain on fore,” Sanjiv Mehta, President, FICCI said in a statement.

“While the headwinds from the external sector continue unabated, we should be able to hold our ground given our comfortable position on forex and debt levels,” he said.

Anshuman Magazine, Chairman & CEO – CBRE (India, South-East Asia, Middle East and Africa) said that the quantum of increase is on expected lines. “Considering the global headwinds facing the economy, we believe that the decision is a calibrated step towards balancing the inflation – growth dynamic,” he said.

The RBI has been raising policy rates since May when it unexpectedly held its first unscheduled meeting. Repo rate has gone up by a total of 190 basis points since May.

Also read: RBI hikes interest rates to contain inflation