The benchmark Nifty rose 0.8% to 16,959 while the Sensex gained 0.9% to 56,911 points. Bank Nifty jumped nearly 2% to 39,390.
The monetary policy committee (MPC) of the Reserve Bank of India (RBI) raised the key lending rate, or the repo rate, to 5.90%. The RBI has now raised rates by a total 190 basis points since its first off-cycle hike in May but inflation has remained above the central bank's upper tolerance band of 7%.
“Indian central bank has raised repo rates by 50 bps along expected lines. As the governor has noted, global economy is in turmoil and India needs to be watchful both on the external account as well as in terms of the domestic fiscal situation. We expect the rbi to remain prudent in terms of balancing between growth and inflation," said Sameer Kaul, managing director and CEO, TrustPlutus Wealth
India's retail inflation rate accelerated to 7% in August, fulled by a surge in food prices, and staying above the RBI's 2-6% inflation target band for eight consecutive months now.
“The RBI’s MPC raised its policy repo rate by 50bp to 5.9% as we were expecting. We expect a further increase of 25bp at the December MPC meeting, by which time CPI inflation will likely moderate to 6% YoY as the strong kharip crop is harvested. Once real interest rates are positive, the MPC can pause its rate hikes. The RBI too believes that CPI inflation will average 6%YoY in H2FY23," said Prasenjit Basu, chief economist, ICICI Securities.
“All central banks (with the exception of China’s) are prioritising the fight against inflation. The US, Eurozone and UK currently have much higher inflation rates than their targeted levels of inflation. India is only marginally higher than its targeted inflation rate, but has stayed persistently above it for half a year, hence the need to persist with rate hikes," Basu added.
On the Nifty, UltraTech Cement, Kotak Bank, Power Grid Corp, Hindalco and ONGC led gains on the Nifty, rising 2.3-3.0%. On the Sensex, index heavyweights, Reliance Industries, HDFC twins, and ICICI Bank led gains.
The rupee, too gained, rising 35 paise to 81.50 to a dollar, while the 10-year bond yield slipped 5 basis points to 7.35%.
