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RBI Monetary Policy and its effects on the markets: 08/02/22


" RBI is not bound by any stereotypes and conventions; we will continue to be dynamic in our approach. "


The RBI Governor has set the stage for monetary policy moving into FY-23. It is an exciting time for all market participants. Let's discuss what went down in today's trading day and how RBI's announcement affected the market.

  • RBI Repo rate hiked by 50 basis points: The war in Ukraine has caused inflation to become globalised. To counteract this, an aggressive hike in repo rate was mandatory. At the time of announcement, the market did dip to its day low but soon after it became clear that the Cash Reserve Ratio (CRR) was left untouched a sharp rally was observed in banking stocks. It seems that unlike the hike in May, this hike was almost fully priced in.
  • Inflation target raised by 100 basis points: Being pragmatic and realistic, the RBI has raised the inflation projections to 6.7%, taking into account the soaring prices worldwide. This news caused a slowdown in the post lunch session, causing NIFTY to end on a slightly negative note, down 60 points.
  • Cooperative banks can now give loans to builders: A significant change, it caused NIFTY Realty stocks to soar and drive a strong bullish move of NIFTY along with stocks in NIFTY Bank.
Fear and uncertainty remain at an all-time high as we move into a world with soaring inflation. Market participants should conserve their capital and take only hedged trades.

 

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