MPC outcome: Here’s how RBI managed to assuage investors

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Investors on Dalal Street reacted positively after the Reserve Bank of India (RBI) left interest rates unchanged and maintained an accommodative stance to support economic growth. The benchmark equity index BSE Sensex traded 548 points, or 1.11%, higher at 49,749 at around 12 pm (IST). Likewise, the NSE Nifty index was up 150 points, or 1.04%, at 14,836.

As many as 28 counters in the Sensex pack traded in the green, with Power Grid gaining the most 2.65%. It was followed by State Bank of India (up 2.42%), Nestle India (up 2.40%), Reliance Industries (up 2.35%). On the other hand, IT majors TCS and Tech Mahindra were down up to 0.50%.

The central bank kept the benchmark repurchase rate unchanged at 4% and maintained an accommodative policy stance to support growth. RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) kept its estimate for economic growth unchanged at 10.5% for the current fiscal.

Explained | Repo rate, reverse repo and CRR

Commenting on the policy outcome, Binod Modi, Head Strategy, Reliance Securities said, “RBI’s policy outcome was broadly on expected lines but sounded a bit more dovish. Further, RBI’s guidance on inflation and growth trajectory mostly remained unchanged despite the recent surge in freight costs and input prices.”

“Additionally, continued emphasis towards maintaining balanced liquidity in the system by extending LTRO for six months and introducing secondary market G-sec acquisition program 1.0 certainly bodes well, which clearly reflects RBI’s commitment to sustain growth momentum in the economy. Announcement of additional Rs 50,000 crore liquidity facility to all India financial institutions like NABARD, NHB and SIDBI augur well to sustain ongoing growth. Overall, RBI succeeded to convince market about its stance on growth and liquidity management,” he said.

Among the sectoral indices on BSE, the Telecom index rallied the most 2.11%. Bankex, Energy, Metal, Auto, Oil & Gas and Consumer Durables were also up over 1% each.

Deepthi Mathew, Economist, Geojit Financial Services said, “It was in the expected line as the MPC kept the rates unchanged. Though the governor assured of maintaining the accommodative stance as long as the economy recovers, he also cautioned about the factors that could push up prices. One of the highlights in today’s statement was the announcement of G-sec acquisition program 1.0, which the bond market needed the most. It could help in the cool off in bond yields and support the government’s market borrowing program.”