Indian equity markets surged on Friday after the Reserve Bank of India delivered a sharper-than-expected 50 basis points repo rate cut and shifted its policy stance from 'accommodative' to 'neutral'. The Nifty reclaimed the psychological 25,000 mark, while the Sensex jumped over 1,000 points from the day's lows.
"The higher than expected repo rate cut comes along with a shift in the stance back to neutral. This clearly points towards future decisions being more data dependent given the significant global uncertainties," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.
Here's what is driving the optimism:
Lower Costs Of Borrowing
The RBI's move is seen as a front-loaded effort to boost growth by lowering borrowing costs. The repo rate, the rate at which the central bank lends to commercial banks, is a key lever to manage inflation and liquidity. A lower rate reduces the cost of borrowing for banks, which is usually passed on to consumers through cheaper loans.
Liquidity Push Through CRR Cut
Alongside the rate cut, the RBI reduced the Cash Reserve Ratio from 4% to 3%, unlocking Rs 2.5 lakh crore worth of liquidity by December 2025. This measure is expected to ease funding costs for banks and support greater credit flow. As of June 5, the banking system held a liquidity surplus of Rs 3.03 lakh crore.
Cooling Inflation Outlook
The central bank revised its CPI inflation forecast for fiscal 2026 down to 3.7% from 4%, reflecting easing input costs and expectations of benign food inflation. Governor Sanjay Malhotra noted that input costs are continuing to normalise, adding to the central bank's comfort in supporting growth.
"Inflation remains well-anchored, as reflected in the RBI's downward revision of its FY26 forecast to 3.7%. The India Meteorological Department's projection of an above-normal monsoon also bolsters expectations of benign food inflation," said Vikram Chhabra, senior economist at 360 ONE Asset. He added that the 100 bps CRR cut could ease liquidity by Rs 2.5 lakh crore and facilitate faster transmission of rate cuts to both deposit and lending rates.
"This rate cut is more than just a monetary decision—it's a clear growth catalyst and a strategic push for one of the world's fastest-growing economies," said Dhruv Agarwala, group CEO, Housing.com and Proptiger.com.
As of 12:00 p.m., the Nifty was trading 1.09% higher at 25,021.90, and the Sensex was up 1.01% to 82,266.66.
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