On the eve of monetary policy, markets on edge

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Stocks tumbled, 10-year bond yields hit a new three-year high and the rupee fell to a record low in intraday trading on Tuesday, as markets remained jittery ahead of the monetary policy announcement by the Reserve Bank of India on Wednesday.

The benchmark bond yield closed at 7.5180%, up 2 basis points from Monday’s close. Meanwhile, the US Treasury reigned supreme at 2.98% late Tuesday night, having earlier breached the 3% mark.

Markets are bracing for a 40 basis point hike in the key repo rate and a sharp upward revision to the central bank‘s inflation forecast for FY23. Experts said they are eyeing a rate maximum repo rate of nearly 7% by next April or so.

Stocks were in the red for the third consecutive session on Tuesday. The Sensex fell 568 points or 1.02% to close at 55,107.34 as investors continued to remove risk from the table. The broader NSE Nifty fell 153.20 points or 0.92% to end at 16,416.35.

Market watchers said the positions were unloaded ahead of RBI policy because a hike in repo rates would automatically mean higher home lending rates. Banks have already raised their business lending rates and interest rates could rise further. Higher yields are not helpful for stock markets.

Relentless selling by foreign portfolio investors (REITs) – who are worried about high inflation and slowing corporate earnings – put pressure on the Indian currency which slipped 8 paise on Tuesday to 77.71, according to Bloomberg. Tuesday’s intraday low was Rs 77.74, a record low. REITs sold shares worth Rs 2,397.65 crore on Tuesday, according to preliminary data.

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