Markets await monetary policy on May 3

May 1st, 2011 - 5:11 pm ICT by IANS  

Sensex Mumbai, May 1 (IANS) Traders at Indian equities markets will be eying the central bank very closely as it comes out with its annual monetary policy on May 3.

The view largely among analysts is that the Reserve Bank of India will go in for another round of tightening given the high inflation. It has already hiked key interest rates eight times in the past 15 months.

Latest data showed that food inflation rose for the second consecutive week to 8.76 percent for the week ended April 16.

The annual rate of inflation too had shown an increase, rising to 8.98 percent in March from 8.31 percent the month before, way above the target of 8 percent set by the central bank.

Fearing a hike, the benchmark indices at the stock markets closed in the red. Interest rate sensitive stocks like banking too fell.

The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) closed the week 466.27 points or 2.38 percent lower at 19,602.232 points.

“RBI policy could have an impact on Indian equities in case of a 50 basis points repo rate hike. Fundamentals as in a strong deposit growth and first half of fiscal being a lean credit growth pressure may not warrant a steep hike,” said Rajesh Iyer, head products and research, Kotak Wealth Management.

“But having said that the latest inflation number that came out on April 25 was higher than RBI estimates. RBI may still be ok to go ahead with the same as between inflation and growth the latter is yet to see any slowdown. Inflation surely remains sticky,” added Iyer.

RBI Governor D. Subbarao, will also have an eye on the industrial output, with India Inc. repeatedly saying that higher interest rates was beginning to hurt.

In his outlook on the economy, new Confederation of Indian Industry president B. Muthuraman said that the gross domestic product in the current fiscal could moderate in view of rising inflation and interest rates.

India’s industrial output grew by a lower than expected 3.6 percent in February, bogged down by slow production in the manufacturing sector, particularly capital goods.

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