Economic news

Indian Shares Cut Gains, RBI Hints End to Ultra-Cheap Money

BENGALURU, April 8 (Reuters) - Indian shares gave up early gains, bond yields jumped and the rupee strengthened on Friday after the central bank raised inflation expectations and gave first hints of gradually moving away from its ultra-loose monetary policy.

The central bank kept the lending rate, or the repo rate, steady at 4% as widely expected and stuck to an accommodative stance to support a post-pandemic economic recovery that remained tepid. 

However, it raised 2022/23 inflation forecast by 120 basis points from February to 5.7% amid risks from Russia-Ukraine war, and also cut its economic growth expectation to 7.2% from 7.8%.

As a first step towards policy tightening, the central bank said on Friday it would restore the width of the liquidity adjustment facility corridor to 50 basis points.

Prithviraj Srinivas, Chief Economist, Axis Capital, Mumbai, said the RBI has changed its stance to "more hawkish" and the increase in inflation forecast is a bit more than expected.

The move follows nearly two years of record-low repo rate and against the backdrop of several global peers, including the U.S. Federal Reserve, starting to raise rates to counter a price surge.

"The review shows the RBI is ready to steer monetary policy out of crisis level accommodation," Srinivas said.

India's inflation has breached the 6% upper limit of the central bank's target range for two months. Economists polled by Reuters had expected the RBI to wait at least a few more months to raise interest rates. 

The 10-year benchmark bond yield rose 9 basis points to 7.017%, while the rupee strengthened against the dollar to 75.76 from 75.97 after the policy announcement.

The NSE Nifty 50 index was unchanged at 17,626.90, as of 0603 GMT, while the S&P BSE Sensex fell 0.2% to 58,912.76.

Reporting by Nallur Sethuraman in Bengaluru and Savio Shetty in Mumbai; Editing by Subhranshu Sahu and Arun Koyyur

Source: Reuters

To leave a comment you must or Join us

More news

Back to economic news list

By visiting our website and services, you agree to the conditions of use of cookies. Learn more
I agree