On February 10, 2022, the Monetary Policy Committee headed by the Reserve Bank of India kept the key policy rates unchanged. Also, RBI continues to maintain the ‘Accommodative’ stance to revive and sustain the growth of the economy. On the other hand, the US 10-Year G-Sec Yield crossed the mark of 2% on Thursday. The Nifty index fell by around 1.7% to the levels of 17,311 in the morning session of Friday 11th February 2022. So, let’s discuss the RBI policy highlights in brief and the impact of RBI policy as well as the US 10-Year G-Sec Yield on the Indian stock market in this article.
Monetary Policy Committee Highlights:
- Reserve Bank of India (RBI) has kept the status maintained where the policy rates like Repo Rate, Reverse Repo Rate, etc. are not being changed.
- Also, RBI continues to maintain an ‘Accommodative’ stance which simply relates to a growth supportive stance.
- The reverse repo rate under the Liquidity Adjustment Facility (LAF) remains unchanged at 3.35% and the marginal standing facility (MSF) rate and the Bank Rate at 4.25%.
- The Central Bank of India thinks that Inflation is under control and focused should be totally towards growth. Here, RBI is expecting a Real GDP Growth of 7.8% in FY23.
- If we bifurcate the expected Real GDP Growth given by RBI for FY23, then it goes as follows:
- Q1FY23: 17% (due to low base effect in Q1FY22).
- Q2FY23: 7%
- Q3FY23: 4%
- Q4FY23: 5%
- RBI is witnessing normalization in the economy for the last 2 quarters.
- RBI also said that Consumer Price Index (CPI) Inflation will be around 4.5% in FY23. For FY22, RBI has kept the target of 5.3% for the same.
- Here, the CPI or the WPI (Wholesale Price Index) might not remain on the expected level of RBI, if the Fuel Price goes up post-election in line with the rising Crude prices.
- However, the Central Bank of India didn’t make any policy rate changes and not proceeded with rate hikes, but looking at the global scenario, India too can follow the same path of hiking interest rates.
- The Next MPC Meet is scheduled for April 6-8 of 2022.
Impact of US 10-Year G-Sec Yield on the Stock Market:
- Although due to unchanged policy rates and continued Accommodative Stance by the RBI acted on a positive note for the Indian Stock Market, the rising US-10 Year G-Sec Yield and weak global cues impacted the stock market on Friday.
- The US 10-Year G-Sec Yield has crossed the mark of 2% level. This yield closed at 2.03% on Thursday 10th February 2022.
- Due to the possible scenario of increasing interest rates hikes, the US 10-Year G-Sec yield had shown a pacey journey to touch the figure of 2%.
- The US Federal Reserve can with the interest rate hikes for up to 1.75% to 2%. Here, the US Federal Reserve has not made any interest rate hikes as of now, but the market has factored in the same.
- In January 2022, the Foreign Outflows was around $5 billion or Rs. 37,500 Cr. This outflow was very well countered with the Domestic and High Net-Worth Individuals (HNIs), otherwise, the fall in the stock market could have been much higher.
What Should Investors Do?
RBI’s decision to hold the policy rates at the existing level acted positively for the stock market. But the US 10-Year G-Sec Yield crossed the mark of 2% and with US Inflation on the high level of 4-decades, the Federal Reserve of the USA stance remained hawkish. This weak global cue led to the falling down of the stock market on Friday. Also, for the year 2022, the investor’s focus should be on the business's performance and the broader market might not play a vital role in the Indian Stock Market. Hence, an investor should follow the steady approach of investing and should not invest a lumpsum amount.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.
Originally Published On: https://blog.investyadnya.in/rbi-policy-highlights-and-its-impact-on-stock-market/
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