India Stocks, Bonds Gain as RBI to Keep System Flush With Cash

(Bloomberg) -- India stocks rose along with bonds after the Reserve Bank of India pledged to ensure adequate liquidity in the system while keeping interest rates low to support growth.

The S&P BSE Sensex climbed 0.6% to 44,894.75 as of 1:27 p.m. in Mumbai, while the NSE Nifty 50 Index gained by about the same magnitude. Both gauges have added at least 1.6% this week and are set to close at new highs after a fifth straight week of gains.

Shorter bonds rallied as the RBI desisted from announcing measures to remove excess banking liquidity. The 5-year yield was down 8 basis points to 5.05%, while that on the 10-year note fell 3 basis points to 5.90%. The rupee held on to its gain, up 0.2% to 73.7588 per US dollar.

The monetary policy committee decided to continue with the accommodative stance “as long as necessary at least during the current financial year and into the next year” to revive growth on a durable basis, RBI Governor Shaktikanta Das said in a briefing. The MPC also kept the key repurchase rate unchanged at 4% for a third consecutive meeting, as high inflation left little room to ease further.

India’s RBI Vows Easy Money as Long as Needed to Aid Growth

“We view this move as a positive step toward anchoring bond yields and expect a further easing from current levels,” said Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra Asset Management Co. “While inflation guidance has been increased, there seems to be no urgency to withdraw liquidity prematurely as growth considerations remain equally strong.”

Inflation at 7.6% in October was well above the upper end of the central bank’s 2%-6% target band and the RBI expects the pace of price rises to remain sticky. The monetary authority sees inflation in the fiscal third quarter at 6.8%, well above its targeted range.

The RBI also revised its outlook for the economy, predicting a milder 7.5% contraction this fiscal year as opposed to its reading in October for a 9.5% decline. That follows a less-than-expected drop in gross domestic product in the three months to September, the second straight quarterly contraction.

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