Week Ends In Gains

The week was prominently influenced by the macro data, including the much-awaited FOMC meet in the US and the RBI's monetary policy announcement.

Another notable development was the RBI's decision to increase the repo rate by 25 basis points. The apex bank has continued to override the the market sentiment, and the new governor Dr Raghuram Rajan seems to have followed in the footsteps of his predecessor, Dr Duvvuri Subbarao. The markets received this news negatively, and cut its gains heavily by afternoon. They managed to recover partially by closing, but remained lower to yesterday's closing.

The RBI has also reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25% to 9.5% with immediate effect, as well as the minimum daily maintenance of the cash reserve ratio (CRR) from 99% to 95% with effect from the fortnight beginning September 21, 2013. The reverse repo rate under the liquidity adjustment facility (LAF) has been adjusted to 6.5% and the bank rate is reduced to 9.5% with immediate effect. The bank rate and MSF are recalibrated to 200 basis points above the repo rate.

The WPI for the month of August 2013 also came in at 6.1%, above the market expectations as well the trend seen in the last few months. The rise was on a month-on-month basis too, as July inflation was at 5.79%. The market was expecting inflation to remain near the 5.8% mark, but the higher number has once again triggered panic as the economy seems to have reversed from one of declining inflation to a rising trend.

On the other hand, the RBI continues with its stance against the yellow metal. In a recent development, followed by the recommendation of an internal panel, the apex bank has further tightened the rules for finance companies which lend against gold, a fast-growing business in the country.

The increase in repo rates will hurt the consumers, as loans are going to become dearer. Although the markets have witnessed selling in today's session, a further sell-off cannot be ruled out.