Indian shares decline as RBI rate hike signals tighter policy

Business Recorder reported that Indian equities fell on Wednesday, halting a two-day advance, after the Reserve Bank of India lifted its repo rate by 25 basis points to 5.5%. It was the first hike since February 2023, and the central bank also shifted to what it called calibrated tightening, citing inflation risks from high oil prices and firmer global monetary policy.

The Nifty 50 closed 0.76% lower at 22,603.05, while the Sensex slipped 0.59% to 72,638.7, with both gauges having already lost about 0.7% before the decision. The Indian currency touched a five-month trough versus the US currency and bond yields climbed after the announcement. Fourteen of 16 major sectors ended lower, with metals down 2.3% as a stronger greenback made commodities more expensive for foreign purchasers.

Financial stocks narrowed their losses to end 0.1% lower, while private and state-owned lenders gained 0.1% and 1% respectively. Thomas J Priju of Karma Capital said lending rates reset more quickly than deposit costs, a factor that can ease pressure on bank margins. Analysts also pointed to the lack of extra liquidity tightening as a relief for lenders' funding costs, though higher borrowing costs could still weigh on businesses and partly counter a raised 7.1% growth projection for fiscal 2027 from the RBI.