Sensex, Nifty fall as RBI holds policy rates defying hopes

India’s stock markets fell on Wednesday after the Reserve Bank of India kept key policy rates unchanged, with the repo rate at 6.25%, against expectations, and toughened the policy stance to ‘neutral’ from ‘accomodative’.

BSE Sensex was down 0.59% to 28,169.35 points, while NSE Nifty was down 0.39% at 8733.9 points, after remaining lacklustre for most of the trading session earlier ahead of the monetary policy review.

The Reserve Bank of India’s Monetary Policy Committee today decided to keep the key policy rates unchanged despite saying that it expects the consumer price inflation to remain below 5% in Jan-Mar, and continue to be muted in Apr-Jun on base effect and fall in demand.

Several analysts had expected the Reserve Bank of India to reduce key policy rates by 25 basis points to 6% in order to spur an economy recovering from the impact of demonetisation, as India’s falling inflation and a fiscally prudent budget had given it enough room to cut rates sooner to give a boost to the economy.

However, shares of automobile companies and consumer durable companies continued to trade strong. The S&P BSE Auto index rose 0.39% to 22,165.12 points, while the S&P BSE Consumer Durable index rose 2.17% 13,401.03 points.

The S&P BSE Bankex tumbled 1.31%, with state-run lenders Punjab National Bank, Bank of Baroda and Bank of India leading the losses.

Analysts see the benchmark NSE Nifty falling to 8,500 points on account of an absence of the required spur in the economy.

Earlier yesterday, BofA-Merrill Lynch said in a research report that it expects RBI to cut policy rates by 50-75 basis points through September with help from a fically prudent budget, to offset the impact of demonetisation.

Asian markets were mixed, reversing some of the earlier losses, while oil prices remained under pressure after data overnight showed a build-up in US crude inventory.