RBI announces 50 bps rate cut in policy rate

The stock market rallied nearly 300 points from early lows soon after RBI governor Raghuram Rajan announced a 50-basis-point, that is half a percentage point cut in policy rate that is expected to have an impact in bringing down the rate of interest in the economy but then dipped in the red soon after.

Within minutes of the announcement, the sensex touched an intra-day peak at 25,703, up nearly 100 points from its previous close and up 316 points from 25,287, its session low, but entered the negative territory again to be around the 25,600 level at 1130IST.

The weakness in the Indian market was mainly because of weak global markets, dealers said, but added that the more-than-expected rate cut decision is going to help attract global investors to India.

Rate sensitive sectors like banking & financial services, capital goods and passenger vehicles were initially in the lead with M&M, HDFC, BHEL and HDFC Bank among the top gainers from the sensex constituents. Among the laggards were Vedanta, Dr Reddy’s and Bharti Airtel.

In the post policy announcement press conference Rajan said that inflation, especially the rise in food prices in recent times were comfortable for the central bank to cut interest rate by 50 basis points (100 basis points = 1 percentage point). It was more than what the market was expecting in the run up to the policy on Tuesday, which was 25 basis points.

Source: PTI