In a bid to clamp down on resurgent inflation, the Reserve Bank of India, in its first monetary policy review of 2011, raised repo and reverse repo rates by 25 basis points to 6.5% and 5.5%, respectively. This is in line with street expectations. It also warned that higher food prices could become entrenched if steps to boost output are not taken. In accordance to a CNBC-TV18 poll of bankers and economists, the cash reserve ratio (which is the percentage of their deposits that banks must keep with the RBI as cash) and statutory liquidity ratio (SLR) have been left unchanged. Thus, CRR and SLR continue to stand at 6% and 24%, respectively.
Voicing a similar opinion, Ambareesh Baliga, vice-president of Karvy Stock Broking, says, "The rate hike decision is in line with our expectations. But looking at their revised inflation projections and the RBI report that came in yesterday, we can expect another 25 basis point hike in some time." Calling it a well-balanced policy, Deven Choksey said it intends to tempt inflation without compromising growth of economy.
A bout of volatility was witnessed in mid-morning trade after Reserve Bank of India (RBI) hiked reverse repo rate and repo rate by 25 basis points each at a quarterly policy review today, 25 January 2011. Most interest rate sensitive banking stocks edged higher after the RBI also extended some measures to ease cash crunch in the banking system. Index heavyweight Reliance Industries held firm. PSU OMCs gained as crude oil prices declined. IT stocks rose. The market breadth was strong. the BSE 30-share Sensex was up 124.65 points or 0.65%. The market edged higher in early trade on firm Asian stocks. The market extended gains to hit fresh intraday high in morning trade. The market extended gains soon after the RBI announced a hike in key policy rates at about 11:30 IST. The market instantly came off highs only to bounce back immediately thereafter. As per provisional figures, foreign funds bought shares worth Rs. 63.95 crore and domestic funds bought shares worth Rs. 236.51 crore on Monday, 24 January 2011. Foreign funds have dumped shares worth a net Rs. 5897.95 crore this month, as per data from the stock exchanges, with most of their selling absorbed by domestic funds. Domestic funds have bought shares worth a net Rs. 4573.05 crore this month.
The near-month January 2011 derivatives contracts expire on Thursday, 27 January 2011. The stock market remains closed on Wednesday, 26 January 2011 on account of Republic Day. The results announced so far showed the combined net profit of 381 companies rose 21.8% to Rs. 38895 crore on 21.8% rise in sales to Rs. 38895 crore in Q3 December 2010 over Q3 December 2009. Asian stocks rose on Tuesday, 25 January 2011 as US takeovers, share buybacks and dividend prospects drove the Dow Jones Industrial Average to its highest close since June 2008. The key benchmark indices in Hong Kong, Indonesia, Japan , Singapore and South Korea rose by between 0.05% to 1.63%. The key benchmark indices in China and Taiwan fell by between 0.23% to 0.8%.
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