RBI’s Surprise 50 Bps Rate Cut Fuels Market Frenzy, Sensex and Nifty Hit New Highs

Indian equity markets surged dramatically on Friday, June 6, 2025, after the Reserve Bank of India’s Monetary Policy Committee (MPC) announced a more substantial-than-expected 50 basis point (bps) cut in the repo rate, coupled with a significant 100 bps reduction in the Cash Reserve Ratio (CRR), injecting substantial liquidity into the banking system and signalling strong support for economic growth.

The Build-Up and the Announcement

The trading day on Dalal Street began with a sense of cautious optimism. While a rate cut was widely anticipated by market participants, the quantum was a subject of debate, with many expecting a more conservative 25 bps reduction. Early trading saw benchmark indices, the BSE Sensex and NSE Nifty 50, open with minor losses as investors awaited the crucial RBI policy outcome.

The atmosphere changed dramatically around mid-morning as the RBI Governor announced the MPC’s decisions. The central bank cut the repo rate by 50 bps, bringing it down to 5.5%. This marked the third consecutive rate cut in 2025, taking the total reduction to 100 bps for the year. Perhaps even more impactful was the decision to slash the CRR by 100 bps, a move estimated to inject approximately ₹2.5 lakh crore of liquidity into the financial system.

Furthermore, the RBI shifted its monetary policy stance from “accommodative” to “neutral,” indicating that future policy actions would be more data-dependent. The central bank also provided a positive outlook on inflation, lowering its retail inflation forecast for FY26 by 30 bps to 3.7%, while retaining the GDP growth estimate for FY26 at a robust 6.5%.

Market Erupts: Sensex and Nifty Soar

The RBI’s decisive action acted as a powerful catalyst for the markets. What began as a cautious session transformed into a full-blown bull run. Investors cheered the aggressive easing measures, interpreting them as a strong signal of the RBI’s commitment to bolstering economic activity.

By the close of trading on Friday, June 6, 2025:

• The BSE Sensex had rocketed up by 746.95 points, or 0.92%, to settle at a new closing high of 82,188.99. During the day, it surged as much as 857.85 points to hit 82,299.89.
• The NSE Nifty 50 reclaimed the psychologically important 25,000 level, climbing 252.15 points, or 1.02%, to close at its own record high of 25,003.05.

The market breadth was overwhelmingly positive, with advancing stocks significantly outnumbering declining ones. On the BSE, 2,261 stocks advanced, while 1,713 declined, and 151 remained unchanged. A total of 4,125 stocks were traded during the session.

Sectoral Impact and Top Movers

The rally was broad-based, but rate-sensitive sectors were the clear outperformers. The prospect of lower borrowing costs and increased liquidity sent these stocks soaring:

• Banking stocks were in high demand, with the Nifty Bank index making significant gains.
• Realty stocks also witnessed a sharp upmove, as lower interest rates are expected to boost housing demand.
• Auto stocks joined the rally, with expectations of improved consumer financing options and demand.

Among the Sensex constituents, Bajaj Finance was a standout performer, surging by 4.93%. Axis Bank climbed 3.15%. Other major gainers included Maruti, IndusInd Bank, Bajaj Finserv, Eternal, Mahindra & Mahindra, Tata Steel, Kotak Mahindra Bank, Titan, HDFC Bank, and NTPC. On the flip side, Bharti Airtel and Sun Pharma were among the few laggards.

Expert Commentary

Market experts largely lauded the RBI’s bold moves. Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, had noted pre-policy that while a 25 bps cut was factored in, the RBI’s commentary on growth and inflation would be key. He suggested that an inflation forecast cut would be market-positive. The actual 50 bps cut and the lowered inflation forecast clearly exceeded these baseline positive expectations.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, commented on the policy’s impact: “RBI’s decision to cut the repo rate by 50 basis points is a significant move that will have a positive impact on the economy and various sectors, including real estate. This reduction is expected to lead to lower borrowing costs, increased liquidity, and enhanced consumer spending power. For the real estate sector, this move is particularly beneficial.”

The shift in stance to “neutral” was also seen as a pragmatic step, allowing the RBI flexibility to respond to evolving macroeconomic conditions without being locked into a specific easing or tightening cycle.

Implications for Retail Investors

For retail investors, the RBI’s announcements carry several positive implications:

• Lower Loan EMIs: The repo rate cut is likely to translate into lower equated monthly instalments (EMIs) for home, auto, and personal loans, as banks pass on the benefit of reduced borrowing costs. This could free up disposable income and boost consumption.
• Improved Investment Climate: The aggressive easing measures are aimed at stimulating investment and economic growth, which can create a favourable environment for equity investments in the medium to long term.
• Sector-Specific Opportunities: Rate-sensitive sectors like banking, NBFCs, real estate, and automobiles may continue to see investor interest.
• Caution with “Neutral” Stance: While the immediate impact is positive, the “neutral” stance means the RBI will be closely watching inflation and growth data. Future rate actions are not guaranteed and will depend on how these indicators pan out.

What to Watch Next

While the market has reacted euphorically, investors will be keenly watching several factors in the coming weeks and months:

• RBI’s Detailed Commentary: Further analysis of the MPC’s detailed minutes (to be released later) for nuances on the inflation and growth outlook.
• Transmission of Rate Cuts: How quickly and effectively banks pass on the rate cuts to borrowers will be crucial for the policy’s real-world impact.
• Global Economic Cues: International market performance, particularly trends in the US economy, Federal Reserve policy decisions, and global commodity prices, will continue to influence Indian markets.
• Domestic Macroeconomic Data: Upcoming inflation (CPI), industrial production (IIP), and GDP figures will be important to gauge the health of the Indian economy and the future course of monetary policy.
• Technical Levels: With Nifty 50 now above the 25,000 mark, sustaining these levels will be key. Traders will watch for new support and resistance zones to form.
• Next MPC Meeting: The Reserve Bank of India has scheduled its next Monetary Policy Committee meeting from August 4 to 6, 2025.

Friday’s policy was a significant shot in the arm for Dalal Street, reinforcing the RBI’s proactive stance in supporting growth while keeping an eye on inflation. The substantial liquidity infusion and the larger-than-expected rate cut have set a positive tone for the markets, though vigilance regarding domestic and global developments remains paramount.

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This article is for informational purposes only and does not constitute financial advice. Always do your own research before investing.