RBI Hikes Rates, Jet Air Loss, Stocks Down

123jump.com Staff
24 Jun, 2008
New York City

The Rerserve Bank of India increased repo rate to 8.5% from 8% and increaesd the bank deposits requirements to 8.75% from 8.5%. The decision was taken ahead of the scheduled meeting on June 29 after a sudden surge in iflation this week. Earlier in the trading stocks lost ground for the fifth days in a row and the Sensex index declined 1.3% and also dipped below 14,000 lelvel before closing at 14,106.58.

[R]10:00AM New York, 7:30PM Mumbai - Indian shares extended losses for the fifth day in a row. The RBI increases interest rates and bank deposit requirements.[/R]

Market sentiment

Indian equities extended losses on Tuesday for the fifth straight trading day on selling pressures with the benchmark index Sensex falling below the 14,000 mark for the first time since late August 2007.

Fears of further hike in interest rates to clam inflation continued to weigh on the market sentiment. Reserve Bank of India governor signaled on Monday that the bank would tighten monetary policy further to tackle inflation that surged past 11% to a 13-year high. After the market hours the RBI increased the interest rate and deposit requirement.

At the close of the trading, 30-share BSE Sensex fell 1.3% or 186.74 at 14,106.58. On the National Stock Exchange, the CNX Nifty index declined 1.8% or 75.30 at 4,191.10.

Of the BSE traded shares, 1,930 shares declined, 713 shares advanced and 67 shares remained unchanged. Of the 30-member Sensex shares, 24 shares declined while 6 shares gained.

RBI increases interest rate and bank deposit requirements

The Reserve Bank of India increased the repo rate to 8.5% from 8% with immediate effect and raised the cash reserve ratio for banks as well. The bank deposit requirements will increase in two steps. On July 5 the reserve requirement will increase to 8.5% and to 8.75% on July 19.

The broadest measure of money supply has been increasing at a rapid rate and at the end of the first week in June rose at a rate of 21.4%, higher than the target rate of increase between 16.5% and 17%.

Inflation, based on wholesale price index from a year ago increased to 11.05% as on June 7, 2008 from 7.75% at the end of March of 2008 and 4.28% a year ago. Excluding fuel, inflation rose to 9.61% from 5.92% a year ago.

Excluding fuel and food, inflation was 10.33% as against 6.33% in the corresponding period of the preceding year. Consumer price index based inflation for industrial workers and urban non-manual employees stood at 7.81% and 6.99%, respectively, from a year ago in April 2008 as compared to 6.67% and 7.74% a year ago.

UPA-Left nuclear deal on Wednesday

A crucial meeting of the members of ruling coalition is scheduled tomorrow to decide on the fate of proposed deal between the Congress party and the U.S. President. The so called nuclear treaty has divided the ruling coalition members and voiced their displeasure with the deal. The communist parties in the coalition believe that signing a deal with the U.S. will impinge on the country’s future foreign policy.

The communist parties, whose parliamentary support is crucial to the Congress-led United Progress Alliance, have said they would withdraw support if the government went ahead with the deal.

US rate decision tomorrow – rates may be unchanged

The Federal Reserve Bank in the U.S. is expected to hold key rate for short-term lending at current rate of 2%, at the end of two-day policy meeting tomorrow. Investors will scrutinize the statement accompanying the decision for clues on the future course of monetary policy.

Gainers and losers

Tata Steel led the decliners in the Sensex index with a fall of 7.1% to 692.80 rupees. Ranbaxy Laboratories led the gainers in the Sensex index with a rise of 2.4% to 526 rupees.

Sterlite Industries declined 5.4% to 698.10 rupees and Hindalco Industries lost 3.6% to 143 rupees.

NTPC lost 4.8% to 154.20 rupees on news reports that the company had paid 6.9% lower advance tax at 188 crore rupees in the first installment of this financial year over the corresponding period in the previous year.

ICICI Bank declined 3% to 700.10 rupees and HDFC Bank fell 4.6% to 1,046 rupees.

Infosys Technologies declined 4.1% to 1,772.05 rupees. Wipro fell 2% to 470 rupees has raised close to 1,400 crore rupees through external commercial borrowings.

Wipro has been pursuing an aggressive acquisition strategy over the last few years and it concluded two major acquisitions in the year ended March 2008 including Unza and Infocrossing for a cumulative value of close to $900 million. As of 31 March 2008, Wipro had cash and bank balance 3,927 crore rupees.

Reliance Companies update

Reliance Industries gained 0.8% to 2,038.30 rupees on reports that it plans to open its first North American plant in North Carolina with the investment of $215 million.

Reliance Communications fell 2.9% to 474 rupees. Reliance Communication proposed merger deal with South Africa based wireless telecom, MTN is likely to close the deal in the first week of July with Reliance Communication and Reliance will be the largest stock holder in the merged company with holding of 36%.

Asian Markets Review

In Tokyo Nikkei 225 Index closed lower 7.91 or 0.06% to 13,849.56, in Hong Kong Hang Seng index decreased 258.94 or 1.14% closed to 22,456.02. In Australia ASX 200 index higher 6.30 or 0.12% to close 5,290.00. In Malaysia KL Composite index increased 4.87 or 0.41% closed to 1,200.28.

In South Korea Kospi Index decreased 4.75 or 0.28% to close at 1,710.84, in Thailand SET index closed lower 5.15 or 0.67% to 763.75 and Indonesia JSE Index edged increased 2.63 or 0.11% to 2,365.38. Sensex index in India decreased 186.74 or 1.31% to 14,106.58.