The Reserve Bank of India (RBI) hikes repo rate by 25 basis points on Wednesday, 7 October, following rate hikes by some of the major global central banks, such as the US Federal Reserve, the Bank of Japan, and the European Central Bank.
While a 25 bps hike was largely discounted, what disappointed the market was the central bank's hawkish tone and signals that rates could be raised further from here.
"The MPC unanimously voted to increase the policy repo rate by 25 basis points to 5.50%. The MPC also decided to change the stance to 'calibrated tightening'. It underscored that given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook," said RBI Governor Sanjay Malhotra.
Stock market benchmarks- the Sensex and the Nifty 50 - ended 0.59% and 0.76% lower, respectively, while the benchmark 10-year bond yields rose to 7.24% from 7.20% in the previous session.
A combination of domestic and global factors is pushing yields up. Global yields have risen sharply as the rate-hike cycle has started. Moreover, there are concerns over the rising fiscal deficit, which is also making investors sell bonds aggressively, driving yields up.