BENGALURU, June 8 (Reuters) – Indian shares fell to their lowest in nearly two weeks and bond yields jumped on Wednesday after the central bank hiked its key policy rate as widely expected to tame sticky pricing pressures.

The Reserve Bank of India raised the key lending rate by 50 basis points to 4.90% after an unscheduled 40 basis point hike in May. read more

The NSE Nifty 50 index (.NSEI) was 0.19% lower at 16,385.10 by 0446 GMT, while the S&P BSE Sensex (.BSESN) was down 0.23% to 54,982.98. Both indexes had fallen more than 0.70% after the central bank’s decision.

India’s benchmark 10-year bond yield briefly jumped to 7.562%, its highest since March 14, 2019, before trading at 7.50% after the policy decision. The rupee was at 77.6925 against the dollar.

“The 50-bp repo rate hike comes on the back of persistently elevated inflation and continued upside risks,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

“Given that inflation is expected to remain above 6% through 3QFY23, the RBI has to front-load actions. We continue to see another 60-85 bp hikes in rest of FY23 to manage inflationary expectations.”

Economists polled by Reuters had expected the Reserve Bank of India to raise the key lending rate by 25 to 75 basis points. read more

While inflation looks set to remain elevated, mainly driven by high global energy and food costs, economic growth prospects have started to look bleak. Gross domestic product growth slowed to its weakest in a year last quarter on a year ago, the third consecutive slowdown.

Reporting by Rama Venkat in Bengaluru; Editing by Subhranshu Sahu

Our Standards: The Thomson Reuters Trust Principles

Source by: reuters