Banking stocks rose up to 1.5% after the Reserve Bank of India's Monetary Policy Committee (MPC) hiked rates in line with market expectations. The central bank raised the repo rate by 50 basis points (bps) after a cumulative hike of 90 bps in the last three months to ease inflationary pressure on the economy.

Reacting to the RBI policy outcome, the BSE Bankex and Bank Nifty indices continued to trade in positive terrain, holding early gains. The BSE Bankex index was trading 0.77% higher at 43,681, while the Bank Nifty index rose 0.54% to 37,959 levels at the time of reporting. In comparision, the BSE benchmark Sensex was trading 186 points higher at 58,484 levels, with 24 of 30 constituents flashing in green.

In the BSE Bankex space, ICICI Bank was the best performer with a 1.44% gain, followed by State Bank of India (SBI), which rose 1%. Among others, Axis Bank, Federal Bank, Kotak Mahindra Bank, Bank of Baroda, and HDFC Bank were trading higher with marginal gains.

Bucking the trend, shares of IndusInd Bank and Bandhan Bank were trading tad lower after the RBI unveiled the policy decision.

RBI Governor Shaktikanta Das-led six-member committee unanimously voted to hike the policy rate (repo rate) by 50 basis points (bps) to 5.4% to tame inflation. Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.15% and the marginal standing facility (MSF) rate and the bank rate revised to 5.65%. So far, the RBI has raised the repo rate by a cumulative 140 bps in three months – 50 bps today, 40 bps in an off-cycle meeting in May, and 50 bps in June.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” RBI says in a press note.

The RBI policy decision was broadly in line with market expectations as the inflation pressure continued to remain elevated due to the ongoing Russia-Ukraine war which led to the surge in international crude prices and other commodities.

In the last policy meeting in June, RBI Governor Shaktikanta Das-led MPC hiked the repo rate by 50 basis points to 4.9% in order to contain spiralling inflation. India’s retail inflation, measured through Consumer Price Index (CPI), stood at 7.01% in June and 7.04% in May this year. It stood above RBI’s threshold limit of 6% for the sixth consecutive month in July.

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