Shanghai: Developing nation stocks fell for a third day on concern central banks will withdraw stimulus and step up efforts to curb inflation after India’s surprise interest rate increase last week.
ICICI Bank Ltd, India’s second biggest lender, lost 2.2% on concern loan demand may fall with higher borrowing costs. OAO Rosneft, Russia’s largest oil producer, retreated 2.9% after energy prices dropped.
The MSCI Emerging Markets Index dropped 1% to 988.03 at 5:56pm in Shanghai. India’s Sensex Index slid 1%, the most in six weeks. Russia’s Micex Index declined 1.6%, the biggest retreat in a month, while South Korea’s Kospi Index and Taiwan’s Taiex Index declined 0.8%.
The start of the interest rate normalization in India is likely to fuel fears of early rate hikes in China, Brazil and other emerging markets, said John Praveen, chief investment strategist at Prudential International Investments Advisers LCC, a unit of Prudential Financial Inc., which oversees $667 billion.
Crude oil sank 1.1% to $79/78 a barrel, a third straight decline. A measure of metals traded in London dropped 0.9% on 19 March after India’s higher borrowing costs spurred concern that metals demand in Asia will decline.
The Reserve Bank of India raised its benchmark reserve repurchase rate to 3.5% from a record-low 3.25% on 19 March and the repurchase rate to 5% from 4.75%, saying containing inflation has become imperative. The move came a month before its scheduled monetary policy meeting.
The rate increase underscores the seriousness of the inflation problem, said Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd, the investment banking arm of SMC Group in New Delhi.