Nifty erases earlier losses, ends flat on metal firms

By Abhishek Vishnoi

MUMBAI (Reuters) – Stocks, bonds and rupee fell on Tuesday after the RBI kept interest rates on hold at 7.50 percent and took no action to inject more funds into the financial system, disappointing some investors.

In opting to keep the key lending repo rate unchanged, the Reserve Bank of India (RBI) said it wanted to wait longer to assess inflationary pressures before making its next move, and give banks more time to adjust their lending rates to reflect previous rate cuts.

The RBI also left the cash reserve ratio (CRR), or the share of deposits which lenders must keep with the central bank, unchanged at 4.00 percent.

Some investors had hoped the central bank would lower the CRR to spur more banks to lend, but RBI Governor Raghuram Rajan said the sector should have enough liquidity to be able to lower their lending rates.

“Market was expecting a CRR cut or something on those lines which could have given some direction and helped overall liquidity in the system,” said Pankaj Murarka, head of equities at Axis Mutual Fund.

The Nifty fell as much as 0.8 percent, led by a decline in the Bank Nifty, which fell as much as 1.4 percent.

The BSE Sensex was down 0.6 percent.

The benchmark 10-year bond yield rose 6 basis points (bps) to 7.78 percent, while the partially convertible rupee fell to as much as 62.4050 compared with Monday’s close of 62.18/19 per dollar.

Some analysts said any future rate cuts would likely depend on inflation data, given unseasonal rains last month have pushed up winter crop prices.

The RBI embarked on an easing cycle in January to bolster economic growth. So far it has cut rates twice this year, by a total 50 basis points. Both times the reductions took place outside of the regular policy reviews.

In the overnight indexed swap market, the one-year rate rose 7 basis points to 7.52 percent.

(Editing by Gopakumar Warrier)

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