RBI’s inflation forecast hits Dalal Street – Nifty Bank tanks over 300 points; Sensex, Nifty slip 0.5%

• Sensex and Nifty tanked by over 0.5% after RBI raised its inflation projections for FY24.
• The markets had been expecting the RBI MPC to keep the base interest rates unchanged.
• The markets are also awaiting US inflation data to be released on Thursday.

Indian benchmark indices, the Nifty and the Sensex, slid over half a percent soon after the Indian central bank’s monetary policy committee (MPC) kept base interest rates unchanged but raised inflation projections for FY24 to 5.4% from 5.1% earlier. Moreover, the inflation projection for the second quarter has shot up to 6.2%. The Nifty Bank, which tracks the top banking stocks in the country, slid over 300 points.

"Vegetable prices may see a significant correction in the next few months but uncertainties may remain in domestic food price outlook," said RBI governor Shaktikanta Das in his speech on Thursday.

He added that bringing headline inflation in the tolerance band is not enough, and that they need to be firmly focussed on bringing inflation to 4%. The MPC also maintained status quo on the ‘withdrawal of accommodation’ status.


The stock markets which had been trading cautiously for the last few sessions — fell deeply into the red with Sensex tanking by 421 points and Nifty falling by 119 points.

In other announcements, the MPC also raised the incremental cash reserve ratio for scheduled banks to 10%, which will come into effect on August 12. This temporary measure is intended to absorb excess liquidity from the system including the influx of ₹2,000 notes into the system.

“Good times are when we should build buffers,” Das said in his speech.

For the first time in two years, China is experiencing deflation for the first time. The nation’s consumer price index (CPI) fell 0.3% year-on-year in July. Added to that, factory gate prices — called producer price index plunged 4.4% year-on-year in July.

Brent crude price fell by 0.15% in morning trade to $87.42 per barrel.

ICICI Bank, Brittania, Titan and Tata Motors were among the major laggards in the Nifty pack, while Adani Enterprises, BPCL and ONGC were among the top gainers.

On Wednesday, the benchmark indices closed in the green, charting a smart recovery after falling in early trade. There was heavy buying in Reliance Industries, ITC and M&M after a good start was seen in the European markets.

Apart from cues from the RBI, the markets are also awaiting US inflation data to be released on Thursday, which will guide Fed’s rate action.

“The disinflationary process in the US is likely to continue. A major development which is significant for global markets in general and India in particular is the news of the Chinese economy tipping into deflation. This is bad news for global growth but from India’s perspective the positive likely fall out is that there can be more FPI outflows from China to India. Stocks which FPIs have been buying will benefit,” said Dr V K Vijayakumar, chief investment strategist at Geojit Financial Services.