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Markets pause ahead of RBI policy

This article was posted on Dec 17, 2012 and is filed under Market News

Markets ended lower on Monday, ahead of the Reserve Bank of India’s mid-quarter monetary policy review, weighed down by selling pressure in HDFC Group shares along with ITC and TCS.

The 30-share Sensex ended down 73 points at 19,244 and the 50-share Nifty ended 22 points lower at 5,858.

Goldman Sachs expects the Reserve Bank of India (RBI) to cut its key interest rate by 25 basis points at its policy review on Tuesday after last week’s inflation data came well below expectations, and as economic growth remains sluggish.

“There has been a persistent higher LAF (liquidity adjustment facility) number as well, which indicates a structural liquidity deficit in the system, and has rightly resulted in the resumption of open market operations by RBI. Improvement in liquidity is key for monetary policy easing as rate cuts alone will not be able to transmit into lending rate cuts. Given the above backdrop we expect RBI to cut CRR by 25 basis points on December 18 to ensure adequate liquidity and wait for inflation data while having a cautious watch on government’s ability to take prudent quantitative and concrete steps leading towards fiscal discipline, before actioning a rate cut.”, said Arun Khurana, head-global markets group, IndusInd Bank.

source: Business-Standard

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