Reserve Bank of India cuts bank repo rate |
Indian stock market`s negative reaction to the sudden 80 bps reduction in growth estimates was on expected lines. The reserve bank of India on friday reduced repo rate by 25 basis points. Bond prices fell after the announcement and benchmark equity indices Sensex and Nifty fell by 1.14% and 1.23% respectively. According to experts, While the repo rate cut of 25 bps was in line with consensus estimates, it was below the expectations of the bond market bulls. Debt market participants were expecting a bigger cut because of visible global slowdown. The overall tone of the policy was also dovish indicating an increased probability of further rate cuts in future policy meets, if growth estimates fall further. Debt market`s concern with fiscal slippage which is due to the massive corporate tax reduction announced by the Finance Minister, is the main reason for this. Another worry pertains to states` financing and consequently increased supply of the state development loans (SDLs) which is expected to touch close to `600,000 crore in the current financial year, almost 30% higher than the previous year and as a result, the yield curve is expected to steepen overtime.
|
|
|
|