Stock markets in India ended higher on Tuesday after the Reserve Bank of India cut its repo rate – the rate at which it lends to commercial banks – by 0.25%, reducing it to 6.25%. The Bombay Stock Exchange Sensex closed 91 points up to end at 28,335, while the National Stock Exchange Nifty gained 31 points to close at 8,769, NDTV reported. In trading earlier in the day, Sensex gained more than 300 points and Nifty more than 100 as the markets anticipated a rate cut.
Shares of banking, real estate and auto companies saw gains after RBI Governor Urjit Patel announced the rate cut. The Public Sector Undertaking Bank Index on the NSE rose 1.8% after the announcement. The State Bank of India, Bharti Airtel and Tata Steel were among the top performers of the day.
Investors and analysts welcomed the cut. Vice president for research at Systematix Shares & Stocks, Arun Gopalan, said the move was "indicative of the underlying good health of the economy", according to the Business Standard. Chief Policy Advisor of Ersnt & Young India DK Srivastava said the reduction "should lead to a tangible increase in credit growth, thereby improving growth prospects in the second quarter of FY17", The Financial Express reported.
For the first time, the RBI broke from its tradition of the governor making decisions regarding the monetary policy. The job has now been taken over by the newly-formed Monetary Policy Committee comprising six members.
The MPC was set up with an amendment to the Reserve Bank of India Act, 1934, through the Finance Act 2016. Each member will have a vote, while the RBI governor will have casting vote in case of a tie. MPC members are not eligible for reappointment to the committee. They include three academics, a deputy governor of the central bank and another RBI representative, besides the governor.