Sensex which had opened with a 250 points gain was up 115 points after the Reserve Bank on India on Friday slashed the lending rate by 25 basis points for the fifth time in 2019.
The repo rate after the 25 bps (one basis point is one-hundredth of a per cent) cut stands at 5.15 per cent from 5.40 per cent.
“There won’t be any major impacts in the market given the markets had already priced in this rate cut. Retail investors may feel the benefit this time better than before due to the RBI ruling of external benchmark linked home loan rates which came into effect from October 1,” said Amit Gupta, Co-Founder and CEO Trading Bells.
In an unanimous decision by the committee all the members of the RBI’s monetary policy committee (MPC) voted to reduce the policy repo rate and to continue with the accommodative stance of monetary policy.
“Chetan Ghate, Pami Dua, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das voted to reduce the repo rate by 25 basis points,” the RBI statement said.
However, Ravindra H. Dholakia voted to reduce the repo rate by 40 basis points. The central banks took into account the high frequency indicators which suggested that services sector activity weakened in July-August.
Indicators of rural demand, viz., tractor and motorcycles sales, contracted. Besides, Industrial activity, measured by the index of industrial production (IIP), weakened in July 2019 (y-o-y), weighed down mainly by moderation in manufacturing.
The decision of a 25 bps rate cut came after domestic product (GDP) growth rate slumped to 5 per cent in Q1:2019-20, extending a sequential deceleration to the fifth consecutive quarter.