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Stocks rise, rupee weakens

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Photo: Mint

  • The benchmark Sensex index rose 460.37 points, 0.94%, to 49,661.76, while the Nifty gained 0.92% to 14,819.05
  • The central bank retained its outlook on economic growth at 10.5% for fiscal 2022 while lowering its retail inflation projection for the fourth quarter to 5% from 5.2% earlier

Stocks and bonds rose while the rupee weakened after the central bank pledged to infuse 1 trillion, kept policy rates unchanged and signalled its support for growth, even as the second wave of covid sweeps the country.

The benchmark Sensex index rose 460.37 points, 0.94%, to 49,661.76, while the Nifty gained 0.92% to 14,819.05.

The yield on the 10-year government bond fell 10 basis points from its intra-day high of 6.19% after RBI said it will buy bonds from the secondary market this quarter, in a so-called Government Securities Acquisition Programme, or G-SAP, to keep borrowing costs low and support economic recovery.

Analysts said the markets were reassured by RBI’s commitment to easy liquidity conditions, which came at the end of a three-day monetary policy committee meeting. “RBI sounded more dovish this time and showed its strong commitments once again towards sustaining economic momentum by way of ensuring proper liquidity in the system through various tools", said Binod Modi, head of strategy at Reliance Securities.

The central bank retained its outlook on economic growth at 10.5% for fiscal 2022 while lowering its retail inflation projection for the fourth quarter to 5% from 5.2% earlier.

“The key takeaway is that RBI will continue to maintain the ultra-loose monetary policy and infuse liquidity for a long time as the covid-19 surge will keep imparting uncertainty to the growth outlook," said Rahul Gupta, head of research, currency, Emkay Global Financial Services. “RBI has reiterated that growth is the priority."

Meanwhile, the rupee tumbled 1.52%, the most in 20 months, with analysts warning that the 1 trillion bond purchase will put pressure on the currency. The local currency closed at 74.56 a dollar, a level last seen on 13 November.

“A defined primary liquidity infusion via G-SAP is de facto a secondary quantitative easing on defined balance sheet expansion of RBI...Nonetheless, this will imply massive narrow money growth and primary liquidity which is clearly going to put depreciation pressure on INR", said Emkay Research in a note to its investors.

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