Domestic market benchmarks the Sensex and the Nifty traded lower after the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) lifted rates on expected lines.
The RBI hiked the repo rate by 35 bps to 6.25 percent and maintained the stance focused on "withdrawal of accommodation" on December 7.
Sensex traded 0.34 percent lower at 62,413.75 while the Nifty50 was also down 0.39 percent to 18,570.05 at 11 am.
Rate-sensitive sectors Nifty Bank, Nifty Auto and Nifty Realty all traded lower. The Nifty Bank index was 0.22 percent down at that time, Nifty Auto was down 0.68 percent and Nifty Realty was down 1.19 percent.
Analysts said while the rate hike was on expected lines, there was no sign of a pause in the rate hike trajectory which might have disappointed the market.
"RBI raised the repo rate by 35 basis points, which is in line with expectations, but the governor's tone was hawkish. With the GDP forecast cut, he kept the inflation forecast at 5.7 percent. The market was expecting the governor to signal that the rate hike cycle is coming to an end, but this policy shows no signs of it. However, the market is not reacting much to the policy. It may not be a market event with intraday volatility," said Parth Nyati, Founder, Tradingo.
The RBI MPC also lifted Standing Deposit Facility and Marginal Standing Facility rates by 35 basis points each to 6 percent and 6.5 percent respectively.
The RBI Governor Shaktikanta Das said MPC believed further calibrated action was required to keep inflation expectations anchored and break core inflation persistence.
The RBI expects inflation to be above 4 percent in the next 12 months. The inflation target was retained at 6.7 percent for FY23.
However, it lowered the GDP forecast for Oct-Dec 2022 to 4.4 percent and for Jan-Mar 2023 to 4.2 percent.
"While a 35 bps hike was ours as well as market consensus, it seems like we may not be fully done with the rate hiking cycle. The inflation guard continues to remain. Key to now tracks FOMC outcome in the coming week. Expect bond markets to give up some gains and trade range bound as global growth concerns dominate," said Lakshmi Iyer, CEO- Investment Advisory, Kotak Investment Advisors.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.