RBI Policy’s unchanged repo rate at 6.5% stirred market volatility. Sensex and Nifty are witnessing fluctuations due to cautious investor sentiment. Inflation concerns and foreign investment in bonds add complexity to economic stabilization efforts.
The monetary policy announcement of the Reserve Bank of India (RBI) has had a significant impact on the market. This announcement has increased market volatility.
The benchmark equity indices – Sensex and Nifty – witnessed considerable volatility on Friday morning because of the RBI policy update.
- BSE Sensex is falling by 75.16 points and reached 81,690.70.
- NSE Nifty is also falling by 25.45 points to 24,682.95.
During the trading, both the indices sometimes went up and sometimes down. There was an atmosphere of volatility throughout the day.
RBI monetary policy decisions
RBI Governor Shaktikanta Das announced on 6 December 2024 that the repo rate will remain at 6.5%. This is the 11th time the Monetary Policy Committee (MPC) has not changed it. The repo rate is that rate. The rate at which the RBI lends money to banks when they need it. MPC decided that now is not the time to change anything. There are some problems in the economy. They also said that they are maintaining a neutral stance right now. It means that they are neither increasing nor reducing the rates. They are trying to keep everything in balance. Predictions say the inflation rate could be up to 4.8% in FY25.
Inflation is still a big concern for RBI. This rate may increase by 5.7% in the third quarter. It will reach 4.5% in the fourth quarter. RBI said that it is important to maintain a balance between price stability and economic growth. They also said that when inflation is high. When it is too high, people are not able to spend much and it affects the entire economy. That’s why RBI is taking every decision carefully.
RBI Policy: Market Reactions
The stock market became quite volatile after the announcement of RBI. Earlier the Sensex had increased by more than 800 points. It increased because people were thinking that RBI would provide some good policy support. But when the announcement was made. Investors became a little cautious and started booking their profits. Due to this, many UPS and downs were seen in the market. Now people are making their investment decisions thoughtfully. Due to this reason, fluctuations are being seen in the market.
Recently there has been a withdrawal of money from foreign portfolio investors (FPIs). However, the interest of foreign investors has increased in Indian government bonds. They have recently purchased bonds worth more than $1 billion. This change has happened because people are expecting that RBI will ease its monetary policy a little. It will be easy when economic growth is not that good. Foreign investors are feeling that now investing in bonds can be beneficial. This shift is a positive sign. Some foreign investors are still investing in Indian bonds.
RBI Policy: Currency Stability Measures
The RBI Policy has actively mobilized its forex reserves to handle the falling value of the Indian rupee and currency fluctuations. Forex reserves are the money that RBI has in the form of foreign currency. This is to control currency fluctuations and keep the rupee stable. Reserves have fallen from $705 billion to $656.58 billion (by the end of November 2024).
This step of RBI is important because there is a lot of pressure on the rupee due to sustained FPI (Foreign Portfolio Investors) exits. This intervention is a way to reduce risks and support the economy. This step is necessary so that overall stability is maintained.
RBI Policy: Thoughts
RBI Policy has kept the repo rate unchanged. This shows that they are working carefully keeping in mind inflation and global problems. His focus is on increasing economic growth. It is also important to maintain price stability. A lot of turmoil was seen in the market after this decision.
Investors are now trying to understand all these developments. The situation has become even more complicated due to foreign investments and currency pressure. This step of Rabi seems safe. The market is still quite unsure as to what will happen next.
Also Read: RBI Policy Date: Cash Reserve Ratio Cut to Boost Growth and Liquidity