RBI’s Actions and Inflation Woes

1. Unchanged Repo Rate

The RBI maintained its key repo Rate at 6.5% for the third consecutive time. While this stability was anticipated, RBI Governor Shaktikanta Das indicated that there might be a notable surge in headline inflation in the near term. He also highlighted uncertainty surrounding domestic food prices.

2. Raised Inflation Forecast

The central bank revised its retail inflation forecast for fiscal 2024 to 5.4%, up from the earlier projection of 5.2%. This upward revision reflects the RBI’s cautious stance amid inflationary pressures.

Market Reactions and Impact on Sectors

Consumer stocks such as Asian Paints, ITC, Britannia Industries, and Nestle India bore the brunt of the market decline. Sectors sensitive to domestic interest rates, including financials, banks, public-sector banks, private lenders, auto, and realty, experienced declines ranging from 0.25% to 0.90%. The RBI’s directive to banks to set aside a larger portion of incremental deposits under the cash reserve ratio (CRR) further tightened liquidity in the short term.

Expert Insights and Future Implications

Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services, deemed the incremental CRR as unexpected, interpreting it as a tightening of liquidity surplus. However, Governor Das assured that this measure would be temporary, with a review scheduled for September 8. Anitha Rangan, Economist and Associate Director at Equirus group, remarked that the RBI’s commitment to combat inflation signifies that rate cuts are unlikely in the near future.

Spotlight on Individual Stocks

Among individual stocks, Zee Entertainment Enterprises witnessed a substantial surge of 16.55% following the National Company Law Tribunal‘s approval of the media company’s proposed merger with Sony. This positive development marked a significant turning point for the involved entities.

Global Factors and Future Outlook

Market participants eagerly awaited US retail inflation data for insights into the US Federal Reserve‘s stance on rate hikes. The data, scheduled for release at 6pm IST, could shed light on the direction of the Fed’s monetary policy.

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