Rajan Backs Jaitley on Growth, Cuts Repo Rate; Sensex Hits 30,000 for First Time

Mangalore Today News Network

New Delhi, Mar 04, 2015:  Reserve Bank Governor Raghuram Rajan’s second rate cut in less than two months sent Indian stock markets to record highs on Wednesday. The Sensex jumped over 400 points to edge above 30,000 for first time ever as the RBI lowered repo rate by 25 basis points to 7.5 per cent.

This was the second rate cut this year that took place outside of the RBI’s scheduled policy review meetings.

The repo rate cut came days after Finance Minister Arun Jaitley’s Union Budget announcement on Saturday. In his Budget, Mr Jaitley had loosened the reins on public spending to drive growth, but promised lower-than-expected borrowing despite raising the fiscal deficit target.

"Exciting morning! It looks like the RBI feels reassured by the Budget proposals. The Budget is going in the right direction with greater spending on infrastructure, something that the RBI has sought," said Frederic Neumann of HSBC.

Mr Jaitley increased government spending on infrastructure by Rs. 70,000 crore or 0.5 per cent of GDP, a move that is likely to provide stimulus to the economy at a time when India’s private sector is struggling with falling profitability. On the other hand, the finance minister’s market borrowing target was below expectations easing fears of higher inflation.

Mr Jaitley’s balancing act seems to have gone down well with Dr Rajan. In a statement, he said, "The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative."

Some analysts like Morgan Stanley’s Chetan Ahya had expected the RBI to cut rates quickly. (Read the full story)

The Sensex made a high of 30,024.74, while the 50-share Nifty advanced nearly 125 points to a new high of 9,119.20. The market rally was led by rate sensitive stocks. The Bank Nifty jumped nearly 2 per cent, while auto and realty stocks also saw buying interest on hopes that lower interest rates would boost demand.

 

Courtesy: NDTV