The markets discarded the Reserve Bank move to choke money supply with the BSE benchmark Sensex closing 51 points higher on Friday as better growth forecast lifted investor sentiment, helping it overcome early sharp losses.
Minutes after the RBI announced measures to squeeze money supply, the Sensex tumbled below the psychological 16000 mark. But it recouped shortly as the apex bank left the key policy rates unchanged. The index finally closed 51.05 points higher at 16357.96, following strong buying in interest-sensitive sectors like banking and realty.
The Reserve Bank in its third quarter monetary policy hiked the amount of money that banks have to park with it (CRR) by 75 basis points to contain the rising inflation. This shocked the street as it was expecting only a 50-basis points hike in the CRR.
But as the policy announcement offered a better GDP forecast besides paring the key policy rates such as banks lending and borrowing rates (which determine the interest rates), triggered keen buying interest in interest-sensitive sectors like banking and realty, helping the market correct the deep reverses in the early trade and close in the green.
The RBI has revised upwards its GDP outlook for the current fiscal 7.5 per cent from 6 per cent, triggering fag-end buying by foreign funds and domestic institutions in banking, realty and capital goods counters. Being interest rate-driven these sectors were languishing in the run-up to the credit policy.
The broader NSE Nifty also closed 14.80 up at 4882.05 after falling below 4800 on CRR hike.
A strong European opening also helped the market. Key European indices, following firm U.S. index futures, moved up by 0. 43 per cent to 0.82 per cent in the early trade.