RBI rate decision in focus; 25 bps hike expected to impact banks, realty, auto sectors

The Reserve Bank of India raised the repo rate by 25 basis points to 5.50% on Wednesday, marking the first rate hike in nearly four years. The central bank also shifted its policy stance to 'calibrated tightening', with the Monetary Policy Committee voting four members in favour of the move. The decision immediately weighed on rate-sensitive sectors, with banking, NBFCs, realty and automobile stocks coming under sharp selling pressure.

The Nifty Auto index declined more than 1%, with major constituents including Maruti Suzuki, Tata Motors, M&M and Hyundai falling over 1% each. The Nifty Bank index slipped nearly 1%, while the Nifty Metal index dropped more than 1%, with Tata Steel, Hindalco, Nalco and Vedanta falling up to 3%. The PSU Bank index and Nifty FMCG index also declined by up to 1%. Sensex dropped more than 540 points to 72,520 while Nifty 50 lost 176 points to fall below 22,580.

RBI Governor Sanjay Malhotra noted that re-escalation of the West Asia conflict has weighed on global economic sentiment, while the inflation outlook is less benign than last year. The MPC indicated that rate cuts are off the table in the near term. The committee observed that strong GDP growth and high credit growth pose risks of demand-side pressure on inflation, and noted signs of generalised inflation alongside challenges in distinguishing supply-side inflation from second-order effects of price shocks.