Bloomberg, Reuters Mumbai
India stocks rose along with bonds after the Reserve Bank of India pledged to ensure adequate liquidity in the system while keeping interest rates low to support growth.
The BSE Sensex ended 446.90 points or 1% higher at 45,079.55 points, while the broader NSE Nifty jumped 124.65 points or 0.95% to 13,258.55 points on Friday.
Shorter bonds rallied as the RBI desisted from announcing measures to remove excess banking liquidity. Yield on 6.18% 2024 bond fell 9 basis points to 4.77%, while that on 5.22% 2025 bond declined 10 basis points to 5.03%.
The most traded 5.77% 2030 yield slipped 3 basis points to 5.9%.
The rupee held on to its gain, up 0.2% to 73.7962 per US dollar.
The monetary policy committee decided to continue with the accommodative stance “as long as necessary at least during the current financial year and into the next year” to revive growth on a durable basis, RBI Governor Shaktikanta Das said in a briefing.
The MPC also kept the key repurchase rate unchanged at 4% for a third consecutive meeting, as high inflation left little room to ease further.
“We view this move as a positive step toward anchoring bond yields and expect a further easing from current levels,” said Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra Asset Management Co.
“While inflation guidance has been increased, there seems to be no urgency to withdraw liquidity prematurely as growth considerations remain equally strong.”
Inflation at 7.6% in October was well above the upper end of the central bank’s 2%-6% target band and the RBI expects the pace of price rises to remain sticky. The monetary authority sees inflation in the fiscal third quarter at 6.8%, well above its targeted range.
The RBI also revised its outlook for the economy, predicting a milder 7.5% contraction this fiscal year as opposed to its reading in October for a 9.5% decline. That follows a less-than-expected drop in gross domestic product in the three months to September, the second straight quarterly contraction.
Meanwhile the rupee snapped its two-day losing streak to close 13 paise higher at 73.80 (provisional) against the US dollar on Friday as the Reserve Bank of India maintained status quo on the benchmark interest rate for the third time in a row.
At the interbank forex market, the domestic unit opened at 73.81 and saw an intra-day high of 73.70 and a low of 73.81.
It finally closed at 73.80 a dollar, registering a rise of 13 paise. On Thursday, the rupee had settled at 73.93 against the American currency.
The Reserve Bank of India (RBI) on Friday left interest rates unchanged for the third straight time amid persistently high inflation and said the economy was recuperating fast and would return to positive growth in the current quarter itself.
The MPC “decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year,” governor Shaktikanta Das said.
Traders said sustained foreign fund inflows, positive opening in domestic equities and weakness of the American currency in the overseas market also supported the local unit.
Foreign institutional investors were net buyers in the capital market as they purchased shares worth Rs3,637.42 crore on a net basis on Thursday, according to exchange data.
“Rupee had a range bound session as RBI neutralised the impact of systemic liquidity on account of dollar buying in spot market,” Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities. The rupee range remains in 73.55-74.25, he added.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was down 0.16% to 90.56.
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