NEW DELHI: After a volatile Budget Day, the Indian Reserve Bank on Monday began the new week with subdued activity. Despite surging over 500 points last Friday after the Government’s Budget announcement, the market witnessed a slight dip, with the Sensex down 72,022 points, down 63 points (0.1%), and the Nifty down 21,850 points, down 0.01%.
Analysts attribute the poor market performance to a number of factors. Some point to lower-than-expected capital spending outlined in the budget, while others highlight the lack of clear guidance from the US. The Federal Reserve there on monetary policy easing Even a small increase in interest rates is believed to have contributed to the overall decline.
The Sensex and Nifty initially showed gains in early trade on January 1 but took a negative turn during the presentation of the Budget, indicating market sentiment on monetary policy. As the week progresses, investors’ attention is more focused on the Reserve Bank of India’s (RBI) three-day monetary policy meeting from Tuesday.
In December 2023, the RBI kept the policy repo rate at 6.5 percentage, a position it held for the 5th time in a row. SBI Research expects the status quo at the upcoming review meeting in February, with the RBI Monetary Policy Committee refraining from changing the repo rate, which is currently at 6.5 percentage . The RBI’s decision to raise the repo rate by 250 basis points cumulatively from May 2022, barring a recent break, is aimed at curbing inflation. The current inflation rate in India, at 5.69 percentage in December, is above the RBI’s optimal target it is 2-6 slightly percentage.
The central bank’s dedicated efforts to fight inflation is visibly clear, but with the current rate above the 4% target, the focus is on whether the RBI will maintain its cautious stance or consider further adjustments to the repo rate.
Investors will be watching the developments at the RBI meeting closely, as decisions on interest rates, funds supply and inflation will undoubtedly affect the trajectory of the Indian Reserve Bank in the coming weeks .