RBI Rate Cut Fuels Indian Markets

RBI’s 50 basis point rate cut is fueling the Indian equity markets today. RBI positively surprised the markets on Friday, by going for a 50 basis point rate cut. Markets were broadly expecting a 25 basis point rate cut. One basis point is 0.01%.

At 12:44 a.m. Indian Standard Time, 9th June, 2025, Nifty 50 is up by 118.80 points or 0.48%. Sensex is up by 339.46 points or 0.41%. Top three gainers at Nifty 50 at this time are Kotak Bank, Bajaj Finance and Jio Financial Services. Top three losers at Nifty 50 at this time are ICICI Bank, Eternal and HDFC Life.

Why Has Rbi Rate Cut Fueled The Markets?

A higher than expected interest rate cut will give a boost to Indian economy. When interest rates go down, interest-sensitive consumption and investment become cheaper. Consumption and investment in the economy therefore go up. This in turn gives a boost to economic growth.

The interest rate cut also gives the signal that the central bank is becoming more concerned about economic growth. The central bank has maintained its monetary policy stance at neutral for the time being. This it has done as it remains cautious regarding the inflation situation. The central bank also lowered its inflation forecast for 2025-26 to 3.7% from 4% earlier.

Why Are Banking And Nbfc Stocks Gaining Today?

At NSE today, among sectoral indices, Nifty PSU Bank index, Nifty Private bank index and Nifty Financial Services index are the top gainers. At this time, Nifty PSU Bank index is up by 1.64% in the day. Nifty Private bank index is up by 1.13%. Nifty Financial Services index ex – bank is up by 1.48%.

Banking and financial services stocks are gaining today as lower interest rates will lower their cost of raising funds too. The rate cut will be passed on to borrowers in the form of lower interest rates on the loans that they take. This will increase the demand for loans. Any adverse impact of lower interest rate on net interest margin of banks is likely to be zero as banks will simply pass on the rate cuts to both depositors and borrowers.

The central bank also announced that it will lower cash reserve ratio (CRR) by 3% in four tranches, starting from September. CRR is the percentage of its total deposits that a bank has to keep with the central bank as reserves. Lowering the CRR means that banks will have more money to lend. This in turn may give a push up to their profitability.

Disclaimer: This article is only for informational purpose. It does not make any recommendation to act or invest.

Source: NSE