New Delhi: Experts do not rule out another rate hike by RBI after Friday's 25 basis points increase, on the back of recent hike in petrol prices and the possibility of food inflation not declining in the coming months.
"The RBI has hiked key interest rates by 25 basis points, which wasn't much of a surprise. However, the guidance now causes many to wonder whether the rate cycle has peaked or not.
"This does not rule out the possibility of another 25 basis point hike since food inflation is unlikely to fall in the coming months and petrol prices have just been raised," IIFL Head of Research Amar Ambani said.
With Friday's decision, the short-term lending (repo) rate at which banks borrow from the RBI stands increased to 8.25 per cent and the short-term borrowing (reverse repo) rate at which banks park their funds with the RBI to 7.25 per cent.
Headline inflation rose to 9.8 per cent in the month of August from 9.2 per cent in July this year.
"The rate hike was as per the market expectation and after an initial jittery reaction, benchmark indices resumed to trade in conservative fashion, post the policy announcement. RBI has emphasised yet again that it remains committed to reduce inflationary pressure at the expense of some growth in the economy," Bonanza Portfolio's Senior Research Analyst Shanu Goel said.
Soon after the rate hike, the Bombay Stock Exchange benchmark Sensex fell in a knee-jerk reaction but, within minutes recovered the losses and ended the day at 16,933.83, up 57.29 points.
Commenting on RBI's move and its impact in the stock market, Mape Securities Senior Director, Research Kislay Kanth said, "We are moderately negative on the fact that the RBI opted to increase the repo rate again by 25 bps. This also made the reverse repo rate rise to 7.25 per cent. The markets mostly factored this hike and thus the reaction has been muted".
Kanth added that this 12th rate increase since last year beginning could further reduce economic growth expectations and corporate earnings estimates by analysts in the country.
Hence, the upside in the markets will stay capped amidst global market volatility.
On sectors likely to get affected by Friday's hike, Kanth said: "We believe some pressure to come on auto companies due to the rate increases and property and infrastructure or capital goods sector to stay depressed.
"Exporting sectors can benefit from the fall in the Indian Rupee value, although it should be relatively a transient gain."
"RBI policy stance is in continuation of their fight against inflation. We believe inflation cycle, barring for another fuel price hike, has peaked out and will get reflected from November December onwards," Padmakshi Financial Services' Director Institutional Equities & Chief Strategist Sailav Kaji said.
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