The central bank has not only slashed the repo rate but also shifted its policy stance from ‘neutral’ to ‘accommodative’, signaling a willingness for further rate cuts to bolster economic growth amid global uncertainties, particularly concerning tariff wars.
India’s benchmark indices, the BSE Sensex and NSE Nifty 50, fell sharply on Wednesday despite the Reserve Bank of India (RBI) slashing the repo rate by 25 basis points (bps) to 6 per cent in its first Monetary Policy Committee (MPC) meeting of the fiscal year 2025-26. However, the market has rebounded after a day’s holiday, with the 30-share BSE benchmark jumping 1,210.68 points to 75.05783 and NSE Nifty gaining 388.35 points to 22,787.50 in the early trade.
While the surge comes amid the United States announcing the suspension of additional tariffs on India for 90 days until July 9 this year, experts believe that the markets are expected to respond more gradually and indirectly to the repo rate cut.
The central bank’s decision to reduce the repo rate by 25 basis points is aimed at increasing liquidity in the market. This decision comes at a time when food inflation remains below 4 per cent, and GDP growth estimates, though slightly reduced, remain stable at 6.5 per cent. Though the Rupee has depreciated, India’s foreign exchange reserves are still strong.
According to CS (Dr) Monika Goel, Dean, School of Commerce, Manav Rachna International Institute of Research and Studies, this rate cut by the RBI not only supports liquidity but also is a signal of a stable macroeconomic environment in India in the global trade war situation.
“Therefore, a small repo rate cut reflects the confidence of RBI in the Indian economy’s resilience, especially amid global tariff tensions. While the immediate impact of the repo rate cut will be felt in the money markets, the equity markets are expected to respond more gradually and indirectly. Increased liquidity often translates into improved market sentiment, which may drive investment in interest-sensitive sectors,” said CS (Dr) Monika Goel, Dean, School of Commerce, Manav Rachna International Institute of Research and Studies.
The central bank has not only slashed the repo rate but also shifted its policy stance from ‘neutral’ to ‘accommodative’, signaling a willingness for further rate cuts to bolster economic growth amid global uncertainties, particularly concerning tariff wars.
According to Dr. (Prof.) Vishwanathan Iyer, Senior Associate Professor and Director of Accreditation, Great Lakes Institute of Management, Chennai, the RBI’s accommodative stance suggests potential for further rate cuts in the future, but the immediate market direction will likely be dictated by global cues, particularly developments in international trade and the performance of other major economies.
“In the near term, the market might consolidate, awaiting clearer signals on the global economic front and the actual transmission of the rate cut benefits to the real economy. Any positive developments in global trade negotiations or stronger-than-expected corporate earnings could provide a much-needed boost to market sentiment,” he added.
While investors are currently more concerned about global headwinds, they will also be closely monitoring corporate earnings and any further policy responses from the government and the RBI to support growth.
