The Nifty 50 index moved sideways on Thursday after the latest interest rate decision by the Reserve Bank of India (RBI). The index was trading at ₹17,540, which was ~4% above the lowest point this month. Similarly, the BSE Sensex index was trading at ₹59,570, which was also a few points above the year-to-date low.
RBI interest rate decision
Action by a central bank tends to have an impact on key assets like stocks and currencies. For example, American stocks tumbled sharply in 2022 as the Federal Reserve decided to hike interest rates by more than 400 basis points.
The Reserve Bank of India decided to leave interest rates unchanged at 6.50%. As I wrote here, analysts were expecting the bank to hike by another 0.25% since inflation remains at an elevated level.
In a statement, the RBI said that the rate hikes could come in the future considering that inflation remains stubbornly high. The most recent data showed that the country’s inflation remained above 6.4% in February. That was still higher than the tolerance rate of between 4% and 6%.
The RBI joins other central banks that have decided to pause their rate hikes. Earlier this week, the Reserve Bank of Australia decided to leave rates unchanged. The Bank of Canada has also paused further increases while some ECB officials believe that the hiking cycle is nearing its end.
Most Nifty 50 index constituents were in the red after the RBI rate hike. The top performers in the index were Bharat Petroleum, Adani Enterprises, Eicher Motors, and Reliance Industries. All these stocks jumped by over 30 basis points.
Indian bank stocks reacted mildly to the rate hike. IndusInd Bank shares rose by 0.28% while HDFC stock was little changed. On the other hand, Axis Bank, ICICI, Kotak Mahindra Bank stocks dropped by over 50 basis points.
Nifty 50 index forecast
Nifty 50 chart by TradingView
The daily chart shows that the Nifty 50 index has been attempting to recover in the past few days. At its highest point on Thursday, the index was along the upper side of the descending channel shown in orange. The index is also consolidating at the 50-day and 100-day moving averages. It is also slightly above the 38.2% Fibonacci Retracement level.
Therefore, there are two scenarios to expect. First, the index could have a bullish breakout above the descending channel and retest the key psychological level at ₹18,000. The other alternative is where the shares retests the lower side of the channel at about ₹16,700.
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