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RBI cuts rate ahead of February policy meet, lifts Sensex by over 600 points

The RBI announced a 25 basis points cut in the Repo rate ahead of its monetary policy meeting.

Written by Sandeep Singh | New Delhi |
January 15, 2015 1:09:33 pm
Raghuram Rajan Raghuram Rajan, Governor of Reserve Bank of India

Following easing inflationary pressures, the Reserve Bank of India in a surprise move announced a 25 basis points cut in the Repo rate– at which RBI lends to commercial banks– ahead of its monetary policy meeting on February 3, 2014.

“Inflation outcomes have fallen significantly below the 8 per cent targeted by January 2015. On current policy settings, inflation is likely to be below 6 per cent by January 2016. These developments have provided headroom for a shift in the monetary policy stance,” said Raghuram G Rajan, Governor, RBI in a statement issued early in the morning on Thursday.

The announcement took the markets by surprise following which the Sensex at the Bombay Stock Exchange was trading at 27,970 with a gain of 2.28 per cent or 628 points. The broader Nifty at the National Stick Exchange rose by 186 points or 2.25 per cent and was trading at 8,464 in the afternoon trading hours.

The rupee had also gained 42 paise or 0.67 per cent and was trading at 61.77 against the US dollar.

With RBI stating that it expects inflation to remain below 6 per cent by January 2016, the market is expecting more rate cuts going forward, leading to a sharp rally in the markets. While the real estate index at BSE was up by 6 per cent, the banking index rose by 3.1 per cent.

Going for its first rate cut since that in May 2013, RBI has further said that it expects stable global environment and crude prices. “Crude prices, barring geo-political shocks, are expected to remain low over the year,” said Rajan.

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