Investing.com-- Indian stocks fell on Wednesday, but pared some early losses after the Reserve Bank of India hiked interest rates for the first time since early-2023 and struck a hawkish stance in the face of increasingly sticky inflation.
The Nifty 50 index fell 0.4% to 22,694.55 points, while the BSE Sensex 30 fell 0.55% to 72,684.51 points by 10:31 IST (05:01 GMT). Both indexes had fallen nearly 1% earlier in the session.
The RBI raised rates by 25 basis points to 5.50%, bringing them back to a one-year high amid growing concerns over sticky inflation and tightening monetary policy across the globe.
Indian consumer price index inflation has consistently run above the RBI's 2% to 4% medium-term target since June, with soaring oil prices– due to the Middle East war– being a main source of upside pressure.
A disrupted monsoon, due to the Super El Nino effect, also drove up Indian food prices, while local consumer demand– also a major inflationary driver– continued to push higher.
This scenario primed the RBI to hike rates, with Governor Sanjay Malhotra changing the central bank's stance to calibrated tightening from neutral.
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The RBI said it expects headline CPI to average 5.8% over the next three fiscal quarters, while core inflation is expected at 4.4% for the current financial year.
But the RBI also flagged continued resilience in the Indian economy, with gross domestic product growth for the current year expected at 7.1%.
Capital Economics analysts said the decision supported their view that more interest rate hikes by the RBI were likely, with 25 bps hikes expected in both December and February.
Higher rates tend to weigh on equity markets, especially as local monetary conditions tighten. But they also tend to draw in more foreign capital.
Sectors like large banks and insurers stand to benefit from higher rates, while others such as utilities and autos face a negative outlook.
Tighter monetary conditions herald more headwinds for India's already struggling stock markets, which are among the worst performers in the world so far in 2026. The Nifty is trading down more than 13% year-to-date.
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