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RBI policy: Banks, realty, auto stocks recover post Raghuram Rajan's comments on rates

Raghuram Rajan assured investors that short-term risks are more balanced currently and the RBI has room to cut rates if disinflation continues.

ET Online|
Updated: Aug 05, 2014, 12.03 PM IST
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Raghuram Rajan assured investors that short-term risks are more balanced currently and the RBI has room to cut rates if disinflation continues.
Raghuram Rajan assured investors that short-term risks are more balanced currently and the RBI has room to cut rates if disinflation continues.
MUMBAI: Shares of rate-sensitive sectors such as banks, auto and real estate, which came under selling pressure post the Reserve Bank of India (RBI) review, managed to recoup losses after Raghuram Rajan assured investors that there is still room to cut rates in the near future. The RBI kept the repo and reverse repo rates unchanged at 8 per cent and 7 per cent, respectively.

Speaking to reporters, Raghuram Rajan assured investors that short-term risks are more balanced currently and the RBI has room to cut rates if disinflation continues. He further added that the RBI will not hold rates high longer than necessary.

Inflation has become a cause of worry for the government and the RBI as a weak monsoon has dampened hopes of any easing of prices or rate cuts. However, Rajan clarified that below par monsoon may not mean below-par production.

The RBI is committed to reaching 8 per cent CPI inflation by Jan 2015 and 6 per cent by Jan 2016.

In June, the inflation rate was the lowest since the government started publishing the figures in January 2012, with the consumer price index showing a 7.31 percent rise from a year earlier, Reuters reported.

Banking shares came under pressure and the S&P BSE Banking index remained top loser, down nearly 0.5 per cent, among the other sectoral indices on the BSE.

At 11:20 am, the S&P BSE Bankex was trading 0.07 per cent lower. ICICI Bank was down 0.48 per cent, Kotak Bank was 0.33 per cent lower, and HDFC Bank slipped 0.06 per cent lower. However, Bank of India, BoB, Canara Bank and PNB were all trading nearly 1 per cent higher.

The S&P BSE Realty Index was up 0.74 per cent, led by gains in Unitech (up 1.1 per cent), HDIL (up 1.09 per cent), Godrej Properties (up 1 per cent) and DLF (up 0.5 per cent).

The BSE Auto index was trading 0.4 per cent higher, led by gains in Cummins India (up 4.4 per cent), Motherson Sumi (up 2.8 per cent), Bajaj Auto (up 2.09 per cent) and M&M (up 1.6 per cent).

The Reserve Bank of India in its third bi-monthly monetary policy statement for 2014-15 kept the repo rate unchanged at 8 per cent.

The reverse repo rate was kept unchanged at 7 per cent and cash reserve ratio (CRR) was maintained at 4 per cent, but the RBI slashed SLR rates by 50 bps to 22 per cent. SLR is the portion of bank deposits that banks have to mandatorily invest in government bonds.

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