Markets Plunge On RBI's Monetary Stance

After opening on a positive note, the Indian markets reversed their intraday gains in the afternoon trade post the RBI’s unexpected move of keeping the Repo rate and CRR unchanged. High retail inflation continues to worry the central banker, and any rate cut would only make it things difficult to contain inflation, which is the central bank's priority. The bank's move has come against the street's expectations, dampening the sentiments and drag the markets down today. The Sensex and Nifty closed lower by 1.44% and 1.46% respectively.

The RBI also stated that factors other than interest rates are contributing more significantly to the growth slowdown. In a statement released after the policy meet, the bank stated that global macro-economic and financial conditions have deteriorated in the last six months. At the same time, the domestic macro-economic situation too raises several concerns. While growth in 2011-12 has moderated significantly, based on the consumer price index (CPI), the inflation for May 2012 rose to 10.36% from 10.26% in April.

From the RBI's statement, it is clear that any rate cut will only happen when inflation cools off.  Future actions will depend on a continuing assessment of external and domestic developments that contribute to lowering the inflation risk.

The peer Asian markets closed on a positive note today on the back of favourable news on the Greek elections.

The European markets also continue to trade in the positive territory after the election results in Greece. The markets expect that the New Democracy and Pasok parties will probably join hands to hold majority, which is in favour of the bailout plan. Moreover, concerns over Greece exiting the Euro zone too have faded with the election results. The FTSE, CAC and DAX are trading higher with gains of 0.48%, 0.45% and 0.87% respectively.

Dow Jones Futures is currently trading 36 points or 0.28% down at 12674, indicating a negative sentiment in the US markets.

The market breadth, which indicates the overall health of the market, was negative today. Out of the 3138 stocks traded on the BSE, 1968 declined, 1050 advanced and 120 were unchanged.