Rate hike in line with Street expectation: Analysts

NEW DELHI: The 25 basis points hike in the short-term lending (repo) and borrowing (reverse repo) rates by the Reserve Bank is in line with market expectations and Dalal Street is unlikely to see any major adverse reaction on Monday, say analysts.

The stock market has already factored in the worries of rate hike after the government deregulated fuel prices last week, adding to the already high inflationary pressures.

"The rate hike is in line with our expectations and there is no surprise element in it, as the government had already raised fuel prices adding to the inflationary pressure," CNI Research chairman Kishore P Ostwal told media.

"The market may react by at the most 100 odd points as this is already factored in," he added.

The Reserve Bank late in the day today raised the short-term lending and borrowing rates by 25 basis points with immediate effect to contain the rising inflationary pressures.

"The stock market has already discounted the fears of rate hike," brokerage firm Sharekhan's research head Gaurav Dua said.

"The rate hike is not a surprise for Dalal Street.It was quite expected and logical as the inflationary pressure is mounting. There may be some downsides in the banking stocks but any big correction is not seen," Angel Broking vice-president for research-banking said.

The central bank in a surprise move today raised both the repo and reverse repo rates (the rates at which the RBI lends to and borrows short-term funds from commercial banks), by 25 basis points to 5.50 percent and 4 percent, respectively. The move will raise the cost of funds for banks and temper demand for loans, and in turn, consumer spending.

In a choppy session today, the BSE benchmark index Sensex settled at 17,460.95, down by 48.38 points, despite positive global cues and a higher opening.