Confusion over the direction of interest rates, ahead of the monetary policy review on January 29, and a weak global market dragged down the Bombay Stock Exchange index extending losses for the fifth straight session on Wednesday.

Interest rate sensitive sectors such as banking, realty, metal and automobile witnessed a sell-off in the equity markets. Lower opening in European markets triggered further selling.

The BSE 30-share sensitive index, Sensex, opened 72 points lower at 16708 (the day’s high), extended its losses and touched the day’s low of 16231 before closing at 16289.82, down by 490.64 points. The 50-share Nifty of the National Stock Exchange breached the crucial 5000 and 4900 levels before closing 154.80 points lower at 4853.10. All sectoral indices were down led by realty which lost 7.97 per cent on the BSE. Metals were down by 5.82 per cent, automobiles 4.78 per cent and bank stocks dipped by 4.19 per cent.

Of the 2,944 stocks traded on the BSE, 2,581 declined, whereas 338 stocks advanced. Twenty-five stocks closed unchanged.

All the major Asian indices closed lower with the Shanghai Composite breaking the 3000-level, closing at 2986. SGX Nifty fell 153 points. Japan’s Nikkei closed at 10252.08, down by 73.20 points. European indices were trading lower in early trades on Wednesday and the U.K.’s FTSE-100 closed 60.28 points down at 5216.57.

While writing this report, U.S. market indices — Dow, Nasdaq and S&P 500 — were down marginally.

The central bank (RBI) has to do a balancing act on reining in inflation while sustaining overall growth momentum.

Already, the Government has announced a slew of fiscal measures to mitigate inflationary pressure on essential food items, through public distribution system.

While the central bank reviews monetary policy, it is widely expected to raise the Cash Reserve Ratio (CRR) to suck out excess liquidity in the system which market participants view as a negative measure. However, the hard reality is that the RBI has to contain liquidity in the system which is giving a push to inflationary pressures.

There are divergent views on the expectations of the forthcoming review on monetary policy, which are sending confusing signals to the market.

“The most probable scenario is a 50 basis point hike in CRR. This will be the next logical step in the scheme of things as per the ‘second phase of exit’ and recent RBI rhetoric on vigilance on inflation and imbalance in the pattern of growth,” said Deepali Bhargava, Chief Economist, ING Vysya Bank.

“Even as the domestic economy is set on the revival mode, there are some challenges that have emerged on the policy front. One of the most urgent concerns pertains to mounting inflationary pressures, and RBI’s possible response to the same,” said Kaushal Sampat, COO, Dun & Bradstreet.

Keywords: SensexNiftyBSE

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