Monetary Policy of India and Markets

Monetary policy is one of the most crucial announcements in this period of time. The reason behind the same is the fear of recession in the west and the increasing inflation rate in India. The Indian government is however confident on bringing down the inflation rate to 4% in the next 2 years. The same has been said by the Governor of India, Shaktikanta Das in the recent monetary policy announcements. The policy announced by the Fed contained a 70 basis point hike in interest rate. 

On the contrary the Indian Reserve Bank announced a hike of 50 basis Points. This was announced in the later part of the previous week. Also one of the important reasons why the Indian markets showed gains on the last day of the previous week was this rate hike. The rate hike was expected to be in line with the Fed but the lower rate boosted the trader and investor confidence in the Indian economy.

Monetary Policy Announcements

The interest rate hike presented by the Reserve Bank of India was 50 basis points. This has pushed the interest rate of RBI to 5.9%. This is a 3 year high interest rate in the history of RBI. The growth projection has been revised down to 7% from 7.2% by the RBI for 2023. The GDP growth rate is expected at 6.3% in the Sept quarter. However for the next 2 quarters the same has been forecasted at 4.6% each. The inflation rate projected is 6.7%. Also the same rate can persist for a slightly longer period of time. The RBI aims to bring down the same below 6% by the end of 2023. 

The crude oil prices are one of the major factors that influence monetary policy changes. The pricing of the same is expected at 100 dollars per barrel. RBI also stated that it may alter the monetary policy changes with reference to the changes in the economic situation of the nation. Though the Indian currency is depreciating heavily against the U.S. dollar due to the rate hike, the RBI says that the same is according to their plan. The depreciation of 7.4% in valuation is in accordance with their future plans. 

The FOREX reserves have been decreased to 537.5 billion US Dollars or are down by 67% as per the announcement. The major push to the businesses is the confidence of the Reserve bank of India on financing the external sector deficit. The bank credit has  witnessed growth of 16.2%. Also the next meeting date for the monetary policy is set between 5th and 7th December. 

Monetary Policy Effects on Markets

Post the monetary policy announcements the private banks have increased their rate of lending immediately. HDFC Bank has issued a rise of 50 basis points on loans and also signalled an increase in EMIs. Markets were majorly boosted by the bold statement of Shaktikanta Das. He quoted, “‘New Storm in the World, But Indian ‘Resilient’.” In other words though the world is facing huge problems due to inflation and recession, India is fully proof of such situations. 

Post the Policy announcements the markets rebounded in an unseen manner. The Nifty50 was up by 1.64% or 276 points. This made it cross the 17000 mark with a huge upside move. On the other hand Bank nifty was the most green index with a gain of 2.61% or 984 points. It currently stands at 38631 points. The current situation indicates that the current market index range is a highly volatile yet a strong resistant range. In other words the indices will definitely make huge moves in everyday’s session but it seems a bit difficult for them to cross their all time highs in a short time.

The bear grip has been witnessed in the indices and the entire stock market. This was evident from the markets being in red for constant 6 to 7 sessions. The Nifty50 went above 18000 points and Bank Nifty went above 40000 points again. However both were retraced given the hurdles of Fed announcements.

Market Movement Ahead

The current market situation looks extremely unclear given the investor’s confidence in the market. Though the monetary policy gave a bit of faith to the traders and investors but still the growth projections made are for a long term time frame. On the other hand the U.S. markets are gaining heavily now and SGX Nifty org Nifty50 are not gaining much in their comparison. Maybe the money that flew in from FIIs has been diverted to the U.S. markets. Also the markets may show a huge upside but the same will take a little time. However one thing is very sure that the Indian economy will not go into recession and also the inflation rate is set to come down in the next 2 years as per RBI.