RBI Surprises with Rate Cut to 7.5%

The Reserve Bank of India surprised markets on Wednesday by cutting rates for the second time this year, sending stocks to a record high.  The central bank lowered its benchmark repo rate by 25 basis points to 7.5 percent, it said in a statement, on the back of easing inflation and the government’s commitment to fiscal discipline.

The previous cut, which was also unscheduled, took place mid-January when the central bank shaved rates by a quarter point.  The Nifty index soared to a record 9,008 at the open on the news, while the BSE sensex jumped to a two-month high. The Indian rupee also rose against the U.S. dollar, strengthening to 61.65 versus 61.91 before the announcement.

“I think to some extent the off-cycle moves are becoming the ‘new normal’. It looks like the rate cut is an endorsement of the RBI’s belief in the government’s ‘long haul’ budget,” Vishnu Varathan, senior economist at Mizuho Bank, told CNBC.


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