Indian shares snapped a three-day losing streak to end higher on Wednesday after the country's central bank raised the benchmark interest rates for the first time in over four years. The Reserve Bank of India's monetary policy committee lifted the repo rate by 25 basis points to 6.25 percent, citing inflation concerns, and maintained its "neutral" policy stance. The reverse repo rate was increased by 25 basis points to 6.00 percent.
The hike, the first since January 2014, was predicted by 46 percent of respondents in a Reuters poll this week. India's central bank becomes the latest in Asia to increase rates recently, to battle inflationary pressures or support its currency.
The broader NSE index closed up 0.86 percent at 10,684.65, while the benchmark BSE index ended 0.79 percent higher at 35,178.88. Both indexes pared early gains when the RBI announced its policy decision, but edged higher later in the session.
The Nifty PSU bank index ended 2.5 percent higher after the RBI raised the Liquidity Coverage Ratio (LCR) to 13 percent. An increasing number of economists expect the Reserve Bank of India to raise interest rates, a Reuters poll showed, but most still think it will stay put and use this week's meeting to prepare for a rate increase in August.
An unexpected surge in inflation and economic growth rates have brought forward expectations for the next rate hike by more than a year, when just over a month ago, the RBI wasn't expected to raise rates until the second half of 2019.
"There is expectation of some relief move from the RBI meeting, while the early onset of the monsoon is also giving some kind of support," said Anand James, chief market strategist at Geojit Financial Services. The Nifty PSU bank index jumped as much as 1.7 percent, after posting three straight sessions of losses. State Bank of India, the country's largest lender, rose 1.4 percent.
Bajaj Auto Ltd climbed over 3 percent, reversing two sessions of declines and was the top gainer on the NSE index. Bajaj Finance Ltd and Bharti Airtel Ltd were up more than 2 percent each after both stocks fell in five out of the last seven sessions.
IDFC Bank Ltd soared as much as 5.1 percent after it received a "no objection" from the central bank for acquiring Capital First Ltd, which was up 3.7 percent. Sun Pharmaceutical Industries rose 2.6 percent after CLSA Research upgraded the stock to "buy" following positive Q4 results.