RBI’s 50 bps cut sparks market optimism: Will US-India trade talks seal the deal?

The Reserve Bank of India (RBI) surprised markets with a 50 basis point cut in the repo rate to 5.5%, marking the third consecutive reduction this year. This aggressive move exceeded market expectations and was aimed at stimulating domestic demand, easing credit conditions, and boosting investment across sectors.

The rate cut immediately lifted investor sentiment, with the BSE Sensex rising by 747 points (0.92%) to 82,189 and the NSE Nifty gaining 252 points (1.02%) to close at 25,003. Market experts noted that the RBI’s pro-growth stance is likely to sustain momentum, especially in rate-sensitive sectors.

“The RBI’s rate cut and neutral stance are likely to support market momentum in the near term,” said Puneet Singhania, Director at Master Trust Group.

Banks swiftly passed on the benefits to borrowers, with Bank of Baroda, Punjab National Bank, UCO Bank, and Bank of India reducing their lending rates by 50 basis points.

The move also bolstered the real estate sector, with developers expecting increased housing demand and improved affordability. Deepak Kapoor, Director of Gulshan Group, remarked, “The decision signals the central bank's confidence in the growing resilience of the country's economy... it will translate into an increase in new homeownership numbers.”

Meanwhile, optimism is building around the ongoing US-India trade talks, which have been extended to finalize an interim deal by July 9. This potential agreement is expected to further boost market sentiment and economic growth.

“We expect Indian markets to witness a gradual up-move, supported by positive sentiment following the RBI rate cut and optimism surrounding a potential US-India trade agreement,” analysts said.

The RBI also cut the cash reserve ratio by 100 basis points, injecting Rs 2.5 trillion liquidity into the banking system, further supporting credit growth.

Technical indicators show the Nifty poised for further gains, with support levels holding firm and the India VIX fear index dropping to a two-month low, signaling reduced market anxiety.

Overall, the RBI’s decisive monetary easing combined with trade negotiations has sparked renewed optimism among investors and sectors alike, setting a positive tone for the Indian economy in the near term.

The Reserve Bank of India’s surprise 50 basis point repo rate cut to 5.5% sparked market optimism, lifting the Sensex and Nifty by nearly 1%. This pro-growth move, coupled with ongoing US-India trade talks aiming for a deal by July, has boosted investor sentiment and sectoral growth prospects.