Friday, January 29, 2010

Nifty ignores RBI move, ends up as banks rule out rate hike

The benchmark Nifty saw a significant recovery in the last couple of hours and closed marginally in the green. After the initial jolt from a 75 bps cash reserve ratio hike in the credit policy, the Nifty recovered over 100 points from the day’s lows and the Sensex over 350 points to close at 4882 and 16357 respectively. The markets completely discounted the 75 bps CRR hike by Reserve Bank of India (RBI) while banks also ruled out the rate hike post the RBI move.

The RBI hiked the CRR by 75 bps to 5.75% from 5%. The move will be implemented in two stages; 50 bps hike w.e.f February 13 and 25 bps hike w.e.f February 27. This CRR hike will absorb Rs 36,000 crore of excess liquidity from the markets. However, the RBI kept repo and reverse repo rate unchanged. The revision in GDP forecast to 7.5% from 6% was a surpise for the markets.

Keki Mistry, Vice Chairman and Managing Director, Housing Development Finance Corp (HDFC): "Actual interest rates, in terms of banks hiking rates, I personally don't see that happening immediately. I think banks will start exercising a little more caution keeping in mind the fact that RBI is so concerned about inflation and therefore will start acting. But I don't see them immediately hiking the rates because they are sitting on a lot of liquidity."

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