RBI reduced repo rate, but one thing scared stock market, it rose & fell

RBI in its Monetary Policy Committee (MPC) meeting reduced the repo rate by 25 basis points. This decision was taken unanimously under the leadership of RBI Governor Sanjay Malhotra. It was expected that the stock market could take off due to the reduction in repo rate, but once the stock market rose on the rate cut announcement, the Nifty Bank jumped by about 250 points.

But immediately after that selling started and the market once again went into the negative zone. One reason for the fall in the market could be the commentary of RBI Governor Sanjay Malhotra, in which he expressed concern about many topics. Apart from this, RBI has kept its stance neutral in view of the economic conditions.

This decision was taken in view of the global economic challenges and the inflation situation. Although the Reserve Bank took economic action.

"Neutral stance will provide MPC more flexibility to react to the emerging macroeconomic environment."

RBI in its Monetary Policy Committee meeting

Let us tell you that by 10:52 am, Nifty50 was trading 44.80 points (0.19 percent) down at 23558.55, Sensex (BSE Sensex) was trading 178.94 points (0.23 percent) down at 77879.22, while Nifty Bank was trading 245.45 points (0.49 percent) down at 50136.65.

Also Read: RBI reduced interest rate, announced cut of 25 basis points, loans will be cheaper

It is worth noting that this repo rate cut has come after five years. This step has been taken in view of the global economic challenges and inflation situation. RBI Chief Malhotra said that the process of controlling inflation at the global level has slowed down, which is a matter of concern.

What is the meaning of repo rate

The repo rate is the interest rate at which RBI lends to commercial banks. A reduction in this rate means that banks will now be able to take loans at cheaper rates, which increases the hope of getting cheap loans to consumers and businesses.

Step has been taken to promote economic activity

RBI clarified that it believes in the efficiency of the market and does not target any particular exchange rate or band. This rate is completely determined by market forces. Apart from this, the main reason for the reduction in liquidity has been attributed to advance tax payment.

Looking at the economic outlook, initial corporate results show that there has been a glimpse of mild improvement in the manufacturing sector. Businesses still hope that the situation will improve further.

The performance of the service sector remains good. There is a jump in rural demand, while urban demand has been mixed.

GDP growth rate

RBI has projected real gross domestic product (GDP) growth rate of 6.75% for the financial year 2026. It is expected to be 6.7% in the first quarter, 7% in the second, and 6.5% in the third and fourth quarters. On the inflation front, core inflation may increase marginally, but it will remain at a moderate level. CPI inflation (consumer price index) is projected to be 4.8% in FY 2025.

The RBI governor stressed that it is important to maintain financial stability in the interest of the economy. He said that the RBI is committed to strengthening and rationalizing the prudential framework.

Summary

At the same time, he also made it clear that it is important to maintain a balance between stability and efficiency. Malhotra assured that the RBI will continue the consultative approach in the regulatory process. This step will not only provide stability to the economy but will also prepare it to deal with the challenges in the future.