The Sensex on Monday leapt 786 points but the rupee wobbled as world markets remained on edge with central banks in the US, Britain and Australia poised to raise interest rates and the RBI set to draw up a letter to the government explaining why it failed to cap retail inflation at 6 per cent for three consecutive quarters.

The rupee pared its initial gains and settled 31 paise lower at 82.78 (provisional) against the dollar on Monday Inflation in the 19 countries sharing the euro accelerated to 10.7 per cent in October from 9.9 per cent a month earlier while Sri Lanka reported that the key inflation rate in its badly ravaged economy had eased to 66 per cent in October after hitting 69.8 per cent in September.

Hopes that the US Fed would hint at dialling down the aggressive interest rate hikes saw the BSE Sensex reclaiming the 60000 mark and the Nifty rising above the 18000 level.The Fed will begin a two-day meeting Tuesday. Though it is widely expected to raise interest rates again by 75 basis points for the fourth straight time, there are expectations that it may guide towards a lower hike in its December 13-14 session.

Siddhartha Khemka, head — retail research, Motilal Oswal Financial Services Series, observed that various events over the next few days could keep the market volatile.

“Central banks including US Fed and Bank of England would be having their policy meet, while the RBI has also scheduled an emergency meeting after it failed to contain inflation for three consecutive quarters. On the domestic side the primary market would be abuzz with lot of activities as four companies have lined up their IPOs.” he said.

“Going ahead, the Indian markets are likely to continue with its positive momentum with strong corporate earnings, supportive global markets, and healthy festive demand,’’ he added.

However, the rupee was on a slippery slope, despite a positive opening due to a stronger US dollar and demand for the greenback from oil companies. After beginning the week at 82.37, it ended at 82.78, a 31 paise fall. The US Dollar Index was trading higher at 111.40 as against the previous close of 110.74.

Europe inflation

Euro zone inflation surged past expectations yet again this month to hit a record high, pointing to further interest rate hikes from the European Central Bank as price pressures appear to be broadening.

Consumer price growth in the 19 countries sharing the euro accelerated to 10.7 per cent in October from 9.9 per cent a month earlier, beating expectations in a Reuters poll for 10.2 per cent as inflation in Germany, Italy and France all rose more than forecast, data from Eurostat, showed on Monday.

Energy prices continued to drive inflation but food and imported industrial goods all pushed prices sharply higher even as services played only a marginal role this time.

The ECB has raised rates a combined 200 basis points in the past three months and promised further tightening as soon as December. But markets have started to anticipate a slowdown in rate hikes as a recession looms and gas prices have come down from record highs.

But policymakers are likely to be concerned that underlying price growth, which filters out volatile food and fuel prices, continued to accelerate, which raises the risk that high inflation will get entrenched.

Indeed, inflation excluding unprocessed food and energy accelerated to 6.4 per cent, while an even narrower measure that also filters out alcohol and tobacco rose to 5 per cent from 4.8 per cent.