Indian shares unchanged ahead of RBI policy decision

Indian shares had a muted open on Wednesday, ahead of a widely expected interest rate hike by the Reserve Bank of India, though investors will focus on the outlook the central bank provides on its fight against domestic inflation.

The Nifty 50 index was down 0.04 per cent at 18,635.50, as of 9:16 am, and the S&P BSE Sensex fell 0.03 per cent to 62,606.41.

The RBI is widely expected to raise rates by a smaller 35 basis points (bps), after three back-to-back 50-bps moves to tame stubbornly high inflation. The decision is due at 10:00 am.

Investors will focus on the central bank's outlook on growth and prices for direction as inflation in Asia's third-largest economy continues to stay above its 2-6 per cent tolerance band, including in October when it hit a three-month low of 6.77 per cent.

The signs of cooling inflation and the drop in crude prices in recent months, which is beneficial for a big crude importers like India, had sent the benchmark equity indexes to all-time highs.

Overnight, Brent crude futures sliding below $80 a barrel, back where it began the year, on concerns over demand.

In domestic trading, the benchmark indexes have wavered in the past three sessions ahead of the RBI meeting and as strong US data cooled expectations that the Federal Reserve would slow down its pace of rate hikes. The Nifty and Sensex have climbed 9 per cent each since the last RBI rate hike on September 30.

Investors have been worried that high rates could lead to a global slowdown and, in turn, weigh on domestic demand, which has held up so far. The sustainability of the drop in crude prices is also uncertain.

"A likely smaller rate hike will signal a mix of cautiousness and comfort while keeping all options open for the February policy depending on the conditions," Suvodeep Rakshit, chief economist at Kotak Instituitonal Equities, wrote in a pre-monetary policy note.